Why Secondary and Tertiary Markets are Hotspots for Grocery-Anchored Shopping Centers
Retail real estate is shifting. In recent years, investment and development momentum has begun to veer toward secondary and tertiary markets in areas like Charlotte, North Carolina and Atlanta, George, stemming from increasing growth in those markets. And now, investors are noticing.
What’s caused this shift? Here are a few reasons these “18-hour cities” are the hottest new real estate investment:
- Higher returns: With the rise in occupancy and rental rates in secondary and tertiary markets, there is a tendency for lower cap rates, which allows investors to yield higher return. While some investors may perceive secondary and tertiary markets’ returns as a risk, necessity-based retail, like grocery-anchored shopping centers, are a defensive investment and have betters odds withstanding a market cycle.
- The Millennial Move: Millennials are responsible for a significant amount of growth in secondary and tertiary markets. In 2015, Millennials purchased 35 percent of homes sold in the U.S. As this generation begins to raise families, these more suburban markets are becoming more appealing. Shopping centers in these areas will need to adapt to generational shift, including by bringing in more fresh format and limited assortment grocers like Trader Joes and 365 by Whole Foods.
- Retail is convenient and experiential: In communities it serves, grocery-anchored retail in secondary and tertiary markets is accessible and quick to adapt to reflect the wants and needs of the surrounding neighborhood. When communities can physically unite around shared experiences at highly-trafficked locations like shopping centers, these centers will engage the community and encourage repeat customers.
- Improving fundamentals: At Unison, we focus on the fundamentals of a property, looking for properties with the right location, tenants, and individual attributes, which are often located in secondary and tertiary markets. Since these markets are still emerging, cap rates remain stable with enough room for urban developments to continue to prosper.
At Unison, our investment strategy centers around creating value in our properties, and these markets are prime for this because you can buy at an attractive price, create value, and control returns better. Grocery-anchored shopping centers will remain a constant presence in secondary and tertiary markets as investors benefit from the unique, cost-effective opportunity for growth without encountering the consequences of the fully permeated urban core.
Want to learn more about our approach to investing? Check out our recent byline on this topic in NAIOP’s Development Magazine.