Anchors away: Strip malls deal with the uncertainty of the grocery industry

An Albertsons store at Blue Diamond and Buffalo in the Mountains Edge Market Place is taking shape, its where a Vons grocery shell was constructed and stood vacant for years on Friday, March 17, 2017.

Grocery Industry in Vegas

At the Sahara Pavilion North an El Super store took over the closed Vons space on Friday, March 17, 2017. The state of grocery industry is in transition and it relates to the commercial real estate market in the city. Launch slideshow »

Closures, acquisitions, consolidation and specialization have besieged the grocery-store industry in recent years, leaving a profusion of vacant big-box spaces across Southern Nevada. Without the traditional supermarket anchor and associated foot traffic, suburban strip malls have faced serious troubles, leading to declining business and even bankruptcies for neighboring support tenants.

At some formerly bustling high-profile intersections, you can almost hear the tumbleweeds blowing through the empty parking lots of shopping-centers-turned-ghost-towns.

Despite this uncertain landscape, Amazon plans to include Las Vegas as part of a 20-city pilot program for its brick-and-mortar Amazon Fresh-branded grocery stores. By the end of 2018, the company intends to roll out in various U.S. markets 10 “click and collect” drive-up spots where customers can pick up online orders, as well as 10 traditional stores where customers select goods in person.

“I have mixed views on Amazon, which is thinking of opening up to 2,000 stores over the next 10 years,” said Michael Zobrist, director of Newmark Grubb Knight Frank’s Las Vegas office. “When you go into a grocery store, how many items are impulse purchases when you smell that fresh bread, and how will that affect online shopping with the click-and-collect concept?”

While in-store consumers will pick the freshest produce they can find, workers will tend to rotate stock to maximize value when fulfilling an online order, he noted. “But it’s too soon to speculate — time will tell,” Zobrist said of the concept’s long-term prospects.

A Las Vegas native, Zobrist has witnessed firsthand the local grocery store shuffle, recalling the days when chains such as Alpha Beta, Lucky, Raley’s and Safeway dotted the valley. Local Wal-Mart and Target superstores were still a pipe dream, and specialty grocers such as Whole Foods, Sprouts Farmers Market and Trader Joe’s along with ethnic outlets including El Super and Island Pacific Seafood Market had yet to make a splash.

Christina Strickland-Bonifatto, senior associate at CBRE, said the past few years have seen a flurry of closures and consolidations, particularly in 2014 and 2015, when:

• Albertsons pulled the plug on two valley locations;

• discounter Food 4 Less closed eight stores and converted six more to Smith’s (both are owned by Kroger Co.);

• Vons and Albertsons merged under the Cerberus Capital Management umbrella;

• Albertsons sold stores to Haggen, Haggen went bankrupt and Albertsons resumed ownership of three of the locations;

• and Fresh & Easy closed its 14 valley locations.

More recently, discount chain Save-A-Lot also absconded and closed its four local stores after barely a year and a half of Southern Nevada operations.

“This has resulted in an influx of large empty boxes to the local retail market,” said Strickland-Bonifatto, adding that the typical full-service grocery location has a footprint averaging 50,000 to 65,000 square feet.

According to local figures compiled by CBRE, in December 2008, the valley had 43 vacant box spaces (of more than 18,000 square feet) totaling 1.9 million square feet, compared with 64 empty anchor slots totaling 2.67 million square feet in November 2016.

“Right now, we’re really only seeing new construction and expansion in high-growth areas with a lot of housing and discretionary income,” Strickland-Bonifatto said.

Dan Hubbard, senior director of retail services with the local office of Cushman & Wakefield, expressed a similar sentiment, noting that as suburban sprawl continues, there will be a need to serve the new areas, with recent announcements for two new Smith’s Marketplace formats being developed at Skye Canyon in the northwest and Cadence in Henderson.

“Albertsons will eventually break ground on a new location at Hualapai and Deer Springs, and Sprouts Marketplace is under construction at Farm and Durango, and is rumored to have signed a deal at Silverado and Maryland,” Hubbard said.

Brian Sorrentino, director of ROI Commercial Real Estate, said the economic turnaround has precipitated activity.

“A really neat example is a project at Blue Diamond and Buffalo at the Mountain’s Edge Marketplace,” Sorrentino said. “Vons constructed a building shell in 2006, and then held off on the development. That property is expected to open as an Albertsons this year. (Similarly), Wal-Mart has had land at Blue Diamond and Rainbow for eight or 10 years that it’s now developing. It can take a while, but sometimes the market just needs to correct itself.”

But what about blighted or depressed lower-income neighborhoods across the valley that have been left underserved in terms of grocery options? And what about all those echoing empty spaces?

The solution tends to be twofold, with a combination of repurposing and specialization.

Consider, for example, Sahara Pavilion North, at Sahara Avenue and Decatur Boulevard.

“This used to be a hot spot at a great location, but then Vons closed, and the dynamic in that area shifted, and the 333,000-square-foot property became a ghost town,” Zobrist said, adding that his client recently purchased Sahara Pavilion North. “Specialty Hispanic grocery chain El Super took over the Vons space, and the shopping center slowly started to turn around over the last year.”

Dollar Tree, dd’s Discounts, Peter Piper, Domino’s Pizza, the UPS Store, a furniture store and an insurance agent have leased a combined of 100,000 square feet, Zobrist said

“It’s easy to paint a bleak picture of gloom and doom when you see retailers pulling out, and it may be hard in the short-term, but there are always going to be opportunities,” Zobrist said.

Hubbard cited another successful instance of rebound — Spring Valley Town Center on Flamingo Road and Rainbow Boulevard. The shopping plaza lost an Albertsons, but the space was later leased to La Bonita, and since then the center has been attracting new tenants.

Indeed, local experts agree that smaller-format neighborhood specialty grocers averaging 15,000 to 30,000 square feet are the wave of the future in terms of grocery infill. This includes Hispanic chains such as El Super, La Bonita and Cardenas, as well as Filipino chain Island Pacific, along with specialty grocers such as Sprouts and Trader Joe’s.

Nongrocery alternative uses also are catching on to fill vacancies. Planet Fitness, for example, leased the 52,000-square-foot former Food 4 Less space at Lake Mead Drive and Boulder Highway in Henderson. Trampoline parks are moving into shopping centers that have lost tenants as the result of anchor supermarket closures, breathing new life into struggling plazas.

“Groceries are a daily type of need, so when those anchors leave, smaller tenants like dry cleaners and nail salons suffer,” Strickland-Bonifatto said. “Trampoline parks (such as Sky Zone and FLIPnOut Xtreme) are seeding alternative uses in large boxes.”

Zobrist concurred.

“The vacancies bring opportunities for other types of tenants, bringing new life and blood into retail centers, and the residual result is that other smaller tenants will start to come back,” he said. “The grocery market is healthy overall. There will always be vacancies and issues, but yesterday’s ghost town is today’s vibrant shopping center.”

Business

Share