First Washington Realty Buys DC-Area Retail Center

First Washington Realty has acquired a Whole Foods Market-anchored shopping center in Prince George’s County in Maryland, a Washington, D.C., suburb.

The 163,000-square-foot property is part of a mixed-use district called The Station at Riverdale Park, near the University of Maryland in College Park, Md.

This grocery store is the only Whole Foods location in the county. It will be surrounded by necessity retail and convenient dining options such as Burton’s Grill, Starbucks, Gold’s Gym and Jersey Mike’s.

The Station at Riverdale Park, which includes local favorites Denizens Brewing Co. and District Taco, attracts more than 2.3 million visitors annually.

Prince George’s County is the state’s second-largest county, and its nearly 1 million residents average more than $120,000 in annual household income.

The edge of grocery-anchored properties

“Grocery stores provide owners with long-term stable income from high credit tenants,” David Curry, Farrell Fritz, P.C., told Commercial Property Executive. “Grocery stores also create high and consistent foot traffic, making the shopping centers in which they’re located attractive for retailers who provide other services.”

Demand remains stronger than supply at Urban Edge Properties’ grocery-anchored shopping centers and across the industry in the markets the company operates, observed Scott Auster, the firm’s EVP & head of leasing.

Investors ‘getting off the bench’

Investors are “getting off the bench and stepping up,” according to Lisa Flicker, senior managing partner & head of real estate at Jackson Lucas.

“Many new projects feature retail components and ground-up construction, creating a pressing need for leadership that can oversee every aspect of development. Heightened interest in senior talent for diverse projects continues into the second quarter of this year with many niche assets including grocery-anchored shopping centers, data centers, experiential retail and top-tier offices.”

Meets the open-air shopping trends

The Station at Riverdale Park benefits from the advantage of the open-air retail trends, Mark Sigal, CEO of Datex Property Solutions, told CPE.

Grocers are the third-highest sales-generating retailer, at $705 per square foot, up 35.84 percent since 2019. They are also the tenant category with the second-lowest occupancy costs (a key merchant health indicator) at 1.94 percent, down 27.61 percent since 2019.

The Station at Riverdale Park has ample fast food, restaurant and specialty food options, the second, fourth and fifth-highest sales-generating retailers, respectively, at $782, $669, and $578 sales per square foot.

Grocery-anchored deals, store mix differ from the past

Grocery-anchored centers remain atop the retail property pile. Still, the deals look different than several years ago, according to Jim Tancredi, principal of LMT Commercial Realty, LLC/CORFAC International in Wilmington, Del.

“With the dramatic increase in construction costs, build-to-suit deals are no longer cost-effective because the grocers cannot afford the rent required to cover the cost of the landlord’s construction,” Tancredi said.

He said that developers have turned to several alternative options instead of the build-to-suit approach, considering the importance of securing a grocer for a new retail center.

“The first is selling a pad to the grocery operator,” according to Tancredi. “The second is leasing a pad to the operator. In both instances, the grocer completes the construction, thereby taking the onus off the landlord to invest significant capital into the building. These two methods seem to be the best options for developers and grocery operators.”

The third alternative is a reverse build-to-suit where the landlord leases finished space to a grocer, but the grocer completes the construction with a cap on the landlord’s construction investment, Tancredi explained. This allows the landlord to manage its overall capital exposure and the tenant to take advantage of constructing its building, likely saving money because of their familiarity with the product they are creating. Once the grocer is secured, leasing the inline and pad availabilities becomes more manageable.

“The vast majority of retail sales and services providers, big and small, thrive when they secure space in a grocery-anchored center. The uses range from small boutique stores and eateries, all the way up to mid-sized and large box stores,” Tancredi said.

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Dining establishments appear to be the lead beneficiaries of co-tenanting with a grocer because their operations cannot be challenged by large mail order retailers like Amazon or Temu.

“Because of their success, it is no coincidence that restaurants are some of the highest-paying tenants in many retail centers. Although they may not boast sales volumes similar to eateries, other retail shops and service tenants also benefit from the increased consumer traffic generated by a grocery store in their centers.”

Traditional retail is undergoing a significant shift, according to Neha Govindraj, founder & CEO of Bonside.

“Consumers increasingly gravitate toward destinations that blend experience, variability and convenience,” Govindraj said. “Open-air shopping centers can evolve to meet these needs by thoughtfully curating a balance of service and traditional retail.”

Succeeding with grocery-anchored real estate

Westwood Financial is one of the leading owners and operators of neighborhood retail across the Sun Belt. It recently acquired Paradise Hills in Phoenix and Trails at 620 in Austin, Texas.

“We have long anticipated the enduring appeal of neighborhood retail, strategically cultivating a portfolio of grocery-anchored shopping centers in the fastest-growing markets across the Sun Belt,” Westwood Financial COO Lauren Ball told CPE.

“The resilience of grocery-anchored retail has made it an investor magnet, with capital flowing toward attractive investment opportunities. In the last five years, we have raised more than $325 million.”