Global real estate investment firm Hines will pay $112 million for a shopping center in suburban New York that includes a Whole Foods store, the largest U.S. retail deal since September.
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The 262,000-square-foot property is in White Plains, and the deal — which closed last week — proves that demand for complexes that include supermarkets remains strong. This, despite the increase in interest rates and the slow activity in all types of real estate. These centers have become attractive as the epidemic subsides and consumers return to shopping in person (and not online).
“We believe in retail, we believe in New York,” says Alfonso Monk, chief investment officer for the Americas at Houston-based Hines.
The retail industry is the only segment in real estate where sales increased last year compared to 2021, according to data from the information company MSCI. Sales activity, which reached $85.7 billion in 2022, took place mainly in the first half of the year, and the number of transactions decreased as rates Interest rates are up. Shopping center sales are down, but less than the drop in individual stores, says Jim Costello, chief economist at MSCI’s real estate team.
Monk says shopping centers that have a supermarket anchor have held up well in the face of recent economic fluctuations and that Hines will focus on them from now on, along with residential and industrial acquisitions. “We are staying away from malls and offices for now,” he said.
Food stores have proven resistant to both rising interest rates and inflation. In January, the traffic of shoppers in low- and medium-level stores rose above the level of 2019, according to the information company Creditntell.
“Even with inflation, you’re still going to buy milk, buy eggs, buy butter,” says Angie Solanki, head of retail at real estate services firm Colliers. “You’re still going to the supermarket.”
The rapid growth of food delivery services, such as Fresh Direct, have hurt some food chains. But Monk says shoppers still prefer to buy groceries themselves. “There is a strong amount of people who like to go shopping, and look for fresh products,” he says.
The food industry is a high-volume, low-margin industry that has so far proven resilient to the disruption of online commerce, Monk says. Transportation costs have made it difficult for delivery companies to make a profit, and customers don’t like to pay a lot for delivery.
Buyer traffic to high-end stores decreased in January, after some buyers began looking for cheaper places in light of the price increase. But overall, people are going shopping more and buying more often than they used to decades ago, according to Colliers. The recent increase in the rate of workers returning to the office does not affect the scope of shopping, especially in the suburbs, Solanki says. “Even if you go back to the office, it doesn’t mean you don’t go out at five,” she says. “There is still the flexibility of going out at four and doing some shopping on the way home.”
One Thursday in White Plains, the parking lot outside Whole Foods is crowded with people and carts, and workers from nearby offices are out shopping for lunch. The complex, called the Source, houses the headquarters of Danone – a French food manufacturer, as well as offices of a real estate agency.
Melvin Kuhn, 77, left the store with spring rolls, frozen blueberries, a salad for lunch and a bottle of green tea. He is a retired White Plains resident who says he comes to the store every day to buy some items he needs. “I enjoy coming here and shopping,” he says. “I know the quality is good, and it’s convenient.”
Whole Foods and its upstairs neighbor Dick’s Sporting Goods, another store that benefited from the pandemic as people stocked up on sports gear, recently signed a 10-year lease extension, according to Hines.
The Cheesecake Factory, furniture store Raymour & Flanigan, and a branch of Motor Vehicles are among the other tenants.
Hines paid $41 million less than the previous owner, UBS Realty Investors, paid in 2005 for the property, according to MSCI. A spokesman for UBS declined to comment.
Monk believes investors are overlooking metropolitan New York when looking for properties in the Sun Belt. White Plains has 1,000 homes under construction. “See the company doing more deals like this in the future, taking advantage of the gap between more favored and less favored markets,” says Monk.