Grocers need to reexamine how their real estate will function in the post-pandemic world, writes Joe McKeska, a Senior Managing Director at A&G Real Estate Partners, in an April 26 opinion piece for Progressive Grocer.
While many chains performed well over the past year, McKeska explains, consumer spending continues to swing back to dining out, in-person entertainment and travel. “That means many grocers will need to redouble their efforts to improve fundamental weaknesses that they were able to gloss over during the pandemic, such as subpar in-store experiences and inadequate omnichannel infrastructure,” he advises.
Optimizing real estate is an important way to free up the capital needed to fix those problems. In the column, McKeska offers four specific tips.
The first is to align your real estate and business plans. In managing real estate day-to-day, he notes, grocers can lose sight of the need for their portfolios to support their longer-term strategies. At many chains, for example, new approaches to the ecommerce supply chain are changing the parameters for store footprints and locations. “Your real estate plan needs to span multiple years and be fully in synch with all such strategic considerations,” McKeska writes.
The veteran grocery executive also advises grocers to plan early for lease expirations/extensions and store closures.
Extending a lease well before its expiration date is another way to create incremental value, McKeska advises. He cites a scenario in which the grocer plans to spend several million dollars on a renovation. In agreeing to extend the lease by 10 years, the grocery stands to substantially increase the resale value of the property, potentially into the seven figures. “This gives the landlord a good reason to provide rent concessions, contribute capital to the remodel and/or make improvements to the center,” McKeska writes.
It’s also important to make the tough decisions now—especially when it comes to closing underperforming stores. “It’s more critical than ever to be aggressive in right-sizing, consolidating and relocating your stores as needed,” McKeska notes. “By making tough decisions proactively, grocers gain the time needed to pursue early lease terminations and find suitable replacement tenants.”
Lastly, McKeska urges grocers to fully appreciate their leverage, which was growing even before the pandemic but is even stronger today.
That’s because landlords aim to maximize the productivity and value of grocery-anchored properties by adding outparcels, drive-thru lanes and other convenience-oriented amenities. Due to protective lease restrictions commonly enjoyed by grocers, however, landlords are often unable to pursue such plans without the grocer’s permission.
“With this powerful bargaining chip, you stand to secure lower rents and more favorable terms in exchange for granting the landlord greater freedom to redevelop the property and repurpose common areas,” McKeska concludes.
Prior to joining A&G in 2016, McKeska served as Senior Vice President of Real Estate for Southeastern Grocers. He previously held top real estate positions, including Group Vice President of Real Estate, in his 17-year career with Supervalu, Inc. and predecessor entities.
About A&G Real Estate Partners
A&G is a team of seasoned commercial real estate professionals and subject matter experts that delivers strategies designed to yield the highest possible value for clients’ real estate. Key areas of expertise include occupancy cost reductions, lease terminations, dispositions, real estate sales, real estate due diligence, valuations, acquisitions, and facilitation of growth opportunities. Utilizing its marketing knowledge, reputation and advanced technology, A&G has advised the nation’s most prominent retailers and corporations in both healthy and distressed situations. The firm’s team has achieved rent-reduction and occupancy-cost savings approaching $8 billion on behalf of clients in every real estate sector, while selling more than $12 billion of non-core properties and leases. Founded in 2012, A&G is headquartered in Melville, N.Y. For more information, please visit: http://www.agrep.com/
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