Supermarket-anchored retail centres have been most resilient to pandemic headwinds over the past couple of years, according to CoStar data, and could fare best during the cost-of-living crisis too as consumers prioritise essentials over discretionary spending.
The value of having a food-based anchor store on a shopping centre or retail park has increased sharply since the pandemic struck. This can be seen across several key metrics including vacancy, demand, rent and yield levels.
Shopping centres without the key footfall driver provided by a large supermarket have suffered disproportionately. The amount of vacant space on such malls rose from 4.1 million square feet in 2019 to 10.1 million square feet by the end of 2021, a jump of more than 150%, though vacancies have stabilised more recently.
This compares with far lower levels of vacancy at shopping centres with a food-based anchor. Vacancies in this cohort have also risen in recent years, but to a lesser degree, with such centres having about half the amount of vacancy as centres without a large supermarket. Demand at these centres has also rebounded more quickly during 2022.
It is a similar story with retail parks, which in general performed relatively well during the pandemic given their abundance of car parking and the presence of more resilient big-box retailers. Retail parks with a supermarket anchor registered barely any negative demand during the pandemic, while demand losses at parks without such an anchor totalled nearly 2 million square feet in 2020–21.
This is not a new phenomenon, with supermarket-anchored retail parks tending to have lower vacancy rates over the past decade, but the disparity has never been this wide. Fashion or home-anchored retail parks are mounting a comeback this year, however, with around 1 million square feet of positive net absorption bringing vacancies down a little.
Centres or parks with a fashion-based anchor, such as a department store, have struggled not only with many such retailers closing stores or entering administration – most notably Debenhams in early 2021 – but also with falling demand for smaller units in centres without this footfall driver.
Similar trends and disparities can be seen in CoStar’s rent and yield data. Average asking retail rents have fallen across all centre types over the past few years, but especially shopping centres without a supermarket anchor.
The same is true with pricing and yield levels. The average transaction-based yield paid for shopping centres rose sharply for all shopping centres during the pandemic but especially those missing a supermarket anchor, with average yields for such assets nearing 16% in mid-2021. The yield gap also widened across retail parks as investors proved willing to pay lower yields for parks with a food-based footfall driver.
The closure of non-essential stores and the wider adoption of online spending on non-food items clearly helped to drive some of these trends during the pandemic. Average quarterly sales growth in food stores was 4.4% in 2020, which compares with a 12.4% drop in non-food store sales, reversing the trend in the decade preceding the pandemic.
Non-food store sales growth has recovered over the past 18 months as restrictions have periodically eased, which has supported a recovery in yields for centres not anchored by a supermarket since the middle of 2021.
However, the cost-of-living crisis, spurred by soaring inflation and energy bills, is likely to see consumers pare back discretionary spending in the coming months and pivot back towards the essentials. Food retailers and food-anchored retail centres are likely to continue to offer the most resilience in this environment.