EDITOR'S LETTER: Consolidation = negotiating power?
Feb 1, 2001 12:00 PM, Elise Vachon
According to experts, grocery-anchored shopping centers continue to be pursued by investors.
But it seems the ownership of such properties is still wide and varied despite a few large investors focusing on this asset category and increasing their market share.
The question is, with a few owners in control of a larger portion of grocery-anchored centers, will they have better leverage due to consolidated negotiating powers?
One way to find out is to compare the consolidation trend of grocery-anchored shopping centers to that same trend in the world of malls.
To tally information showing a few owners controlling larger portions of grocery-anchored centers have higher leverage due to consolidated negotiating powers isn't easy. The data isn't cut and dried but rather has many variables providing somewhat variable results.
First of all, the definition of a "grocery-anchored" center varies widely. Each center defines the term grocery-anchored as it pertains to them.
Then, making comparisons to malls is tricky as leasing concentrations in grocery-anchored properties are nowhere on a par with malls. So the items being compared differ.
And, grocery stores reside in free-standing buildings, neighborhood strip centers, community centers, power centers and, sometimes, enclosed malls.
In addition, if you compare the size and number of properties for malls and grocery-anchored centers, the difference is evident too. There are many more grocery stores of at least 20,000 sq. ft. than there are malls of this size. Malls don't get close to one-tenth this number, but the average mall value is probably ten times greater.
Finally, mall ownership was somewhat concentrated even before continuing acquisitions by a few, large controlling REITs. And the same isn't overwhelmingly so for grocery-anchored shopping centers.
Once all this information is examined and compiled, however, the results are in. The answer is yes, with a few owners in control of a larger portion of grocery-anchored centers, they will have better leverage due to consolidated negotiating powers.
For malls and grocery-anchored shopping centers (which tend to be owned largely by REITs) financial analysts noted there were important operating, marketing and capital advantages resulting from consolidation.
Some suggest the biggest potential cost-saving for those consolidating is related to the large number of common tenants making malls across the country look alike. It's logical costs go down and bargaining power go up with fewer owners, more bulk purchases and streamlined operations.
However, as the largest investors are under 10% ownership, it is difficult to imagine the grocery-anchored ownership market becoming dominated by a few players anytime soon. Instead, experts predict continuing favorable options for buyers, sellers, brokers and other service providers for some time to come.
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