Grocery-anchored retail shows promise in 2025, but success demands more than expansion, according to a report from JLL. Despite economic challenges, grocers must innovate to meet evolving consumer needs.
Foot traffic in grocery stores has rebounded, surpassing pre-pandemic levels with a 5.9% increase from 2019, following a sharp 11.4% decline in 2020.
In-store consumers spent an average of 23.4 minutes shopping in 2024, down 1.4 minutes from 2019. That came as e-commerce enabled many to do their shopping from home. Also, many visit multiple stores to compare prices and take advantage of deals to reduce the impact of food price inflation.
Discount grocers like Aldi and Grocery Outlet benefited, seeing foot traffic respectively up from 2019 by 51.2% and 48.7%, respectively. Trader Joe’s has used curated brand selections to differentiate itself, seeing foot traffic increase by 24.7% between 2019 and 2024.
Overall, in 2024, the top five most visited grocers were Kroger (7.6% of industry foot traffic), Publix (7.4%), Aldi (5.4%), Safeway (4.8%), and Walmart Neighborhood Market (4%).
The current fundamentals of grocery-anchored retail are generally strong. Supply increases were minimal due to increased construction costs and demand for grocery-anchored shopping center space pushed vacancy to new lows of 3.5%, as of Q4 in 2024. That’s 10 basis points below the same period in 2023 and 100 basis points under Q2 in 2021.
Net absorption was nearly 300,000 square feet in 2024, down 37.9% from 2023. There’s been less than 100,000 square feet in net deliveries in both 2023 and 2024. Between 2015 and 2019, net absorption was 2.1 million square feet and net deliveries were 1.1 million square feet.
Investors have remained interested in grocery-anchored retail as well. Although net absorption has been low due to limited supply, retailers have continued sharp competition for desirable retail space. Retail rents in grocery-anchored centers have continued to rise with persisting demand and limited availabilities. The increase for grocery-anchored subtype was 3.7%. That compared to 3.6% for neighborhood centers, 3.6% for strip centers, 3.3% for power centers, 3% for malls, and 2.9% for general retail.
As for investment, the sector saw levels in grocery-anchored locations rise above those of 2023, mostly fueled by the second half of the year. This coincided with 100 basis points of benchmark interest rate cuts. By the end of 2024, there were $7 billion in transactions, up 1.4% from 2023. The second half of 2024 alone was up 34%. Also, the average price per square foot reached $209, a record.
Source: “Grocery Retail Vacancy Hits Record Low as Demand for Space Rises”
