Western Real Estate Business

MAY 2018

Western Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Western United States.

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50 • May 2018 • Western Real Estate Business www.REBusinessOnline.com THE GROCERY SECTOR CONTINUES TO EVOLVE From traditional supermarkets to ethnic and health food stores, the West is never hurting for a wide selection of grocer fare. By JLL West Coast Brokers G rocery expansions across the United States slowed in 2017 as brands took a step back to ex- amine existing footprints and reevalu- ate company strategies. Grocers that saw success in 2017 focused on the shopper experience by offering fresh, healthy and affordable products, el- evating brand loyalty through private labels and investing in digital plat- forms. On the West Coast, new con- cepts worked to find their niche in a city, while traditional grocers evolved in an effort to maintain market share. Denver (Matt Writt, Vice President) As consumers' thirst for conve- nience and access increased, Den- ver 's grocery landscape continued to evolve. This shift has generated both growth and contraction as gro- cers race to serve a rising Colorado population. Kroger and Whole Foods have recently added new downtown stores, though much of the growth was in mid-box (size-wise) as gro- cers like Sprouts and Natural Gro- cers have adopted smaller formats. Change will continue in 2018 as convenience sets the trend. Kroger 's Clicklist, Walmart's pick-up service and the entrance of new competi- tion through acquisition are what consumers are talking about on their phones between ordering groceries. Inland Empire, Calif. (Erik Westedt, Senior Vice President) Strategic infill is the name of the game in the Inland Empire. This is following a wave of development by grocers Whole Foods 365, Smart & Final, Sprouts, Aldi and many others. Highly desirable key markets include Rancho Cucamonga, Redlands and Chino Hills. There has been more of a pull back from other markets. Most ground-up grocery developments, both recently completed and yet-to-be- built projects, are much smaller in land size than they were historically. To- day's grocery-anchored development can be as small as two to three acres, while in the past they could envelope up to eight acres. This trend will con- tinue as online sales and just-in-time delivery impact the world of retail. Los Angeles (Scott Burns, Executive Vice President) Los Angeles will continue to lead the way as grocery stores adapt tech- nology to deliver groceries direct to consumers. This is due to the region's urbanization, traffic challenges, and sophisticated and affluent consumer base that embraces the benefits of tech- nology. Grocers like Aldi and Grocery Outlet will continue to increase mar- ket share through their more nimble 20,000-square-foot-or-less footprint. Ethnic grocers and some of the other more mainstream grocers, like Smart & Final and Sprouts, will continue to look to fill obvious gaps in their cover- age. The outlook for grocers in growth mode is positive as they will benefit from an increasing inventory of real estate choices resulting from recent and pending closures throughout the toys, office, pharmacy, and bed and bath sectors. Traditional grocers in Los Angeles will continue to look to optimize their real estate, providing more product and food and beverage choices. Some will also reduce their footprints, while mom-and-pop gro- cers will struggle to survive. Orange County, Calif. (Ken Shishido, Senior Vice President) The Orange County grocery indus- try is extremely diverse with large traditional markets, discount grocers, big box retailers and ethnic grocers all playing key roles in the region. Asian grocers continue to expand in North and Central Orange County areas like Buena Park, Garden Grove, Westmin- ster and Irvine/Tustin, while His- panic grocers look for stores in more blue-collar areas like Santa Ana and Anaheim. Discount grocer and eth- nic markets are also looking at closed big box spaces as landlords redevelop these assets into multi-tenant build- ings. Discount grocer Aldi recently opened stores in Orange County by backfilling vacant market spaces and junior anchor-sized spaces. Grocery Outlet has also come back into the market, opening several stores and planning for additional growth after closing stores in this area a number of years ago. Northern California (Christine Firstenberg, Senior Vice President) Growth in Northern California's grocery sector has been a "start and stop" affair in the past two years fol- lowing some tectonic regional shifts in 2015. The most notable one was the $9 billion acquisition of Pleas- anton, Calif.-based Safeway by Al- bertsons. High construction and la- bor costs in the Bay Area, as well as physical and psychological barriers to entry for new grocery operators, stopped or slowed new store growth. 365 by Whole Foods Market will anchor Sycamore Hills Plaza, an 80,000-square-foot shopping center in the Inland Empire submarket of Upland. Health-conscious grocers are cropping up all over the West Coast as the younger, tech-savvy demographic places a premium on wellness. Whole Foods now operates 19 stores in metro Denver, with a large presence near the universities and an expanding footprint heading into downtown.

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