Recent easing in grocery price inflation will be welcomed by UK shoppers. However, figures remain high – and consumers continue to be concerned by rising supermarket bills.
Against this backdrop, bricks & mortar stores are being bolstered by consumer perceptions that the best deals can be found in store, rather than online. This has translated into higher occupier activity levels, and the delivery of new space is a strategic priority for most. So what spaces are they looking for?
Convenience and midsize formats
CBRE’s Grocery Market View Report 2023 analysed the various trading formats grocers are expanding in. Despite traditional grocers having requirements for stores up to 70,000 sq ft (gross), these remain highly selective, and annual store openings are likely to be limited to a handful. Instead, grocers are largely focused on driving growth through expanding convenience formats, building on midsize store formats and investing in existing estates.
Asda, trading as Asda Express, now has three standalone convenience stores with plans to open a further 300 by the end of 2026. Sainsbury’s opened three new convenience stores in East Horsley, Ketley and Wapping last month, shortly after the opening of its new flagship midsized energy-efficient store in Hook in May.
Morrisons’ recent acquisition of McColl’s has enabled the grocer to significantly expand its convenience presence. It plans to renovate the majority of the 1,164 stores while expanding its midsized format with new store openings in Newcastle Great Park and Chelmsford.
The discounters, in particular, continue to report ambitious store expansion plans.
On the other side of the coin, when we consider the premium grocers, M&S continues to deliver its full-line store rotation programme. It’s focusing on the right stores, in the right place, with the right space. M&S plans to open over 100 food stores in the coming years, reaching 420 by full year 2025/26.
Investment activity
CBRE’s research shows that in 2022, supermarket investment volumes fell 60% when compared to the year prior, dropping to £579m from £1.37bn as a result of interest rate hikes combined with record low prime yields.
However, the continued optimism from the leading grocery brands is driving a welcome uptick in investment volumes, which reached £1.1bn in H1 2023. CBRE predicts there is a further circa £175m under offer or exchanged – a marked improvement in activity levels that reflects positive market sentiment. Furthermore, prime yields for supermarkets have stabilised at 5.25%, representing a 10-year high.
As other sub-sectors could well be challenged by stock availability in the next 12 to 18 months, supply levels in the supermarket sector are likely to be driven by the grocers themselves through sale and leaseback mechanisms. At a time of increasing debt costs, sale and leasebacks will continue to offer occupiers an efficient way to raise capital.
So as we move into Q4 2023, grocery-backed assets will remain one of the most resilient and active investment sectors.
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