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Grocery Chains and Other Retail Categories are Making Hay in Mid-Atlantic Region

Wegmans

Located just off Eisenhower Ave. at 150 Stovall St. in Alexandria, Va., the new Wegmans store is scheduled to open in spring 2022. The store will employ approximately 450 people, with 150 full-time positions offered.

The Washington, D.C., and Baltimore markets, when combined, represent the fourth-largest metropolitan region in the nation by population, and retailers are taking notice again. Grocery-anchored projects are the most prevalent in the headlines. For example, the first of nearly 20 Amazon Fresh locations has opened in the area. Additionally, Wegmans’ smaller format rollout plan is active with its first location in Stonebridge’s Carlyle Crossing in Alexandria opening spring 2022, along with Roadside Development’s City Ridge Project at the former Fanny Mae Headquarters in Northwest D.C. Former Shoppers Food Warehouse boxes also continue to get absorbed by new grocers.

A less-covered sector of the grocery market is the international markets category, which remains very active in the region. There are 29 different banners across the region that exceed 10,000 square feet in size, with the newest entrant being Oh! Markets in Northern Virginia. Other international market newcomers, including 99Ranch and Enson Market, are also searching for space. With the immense ethnic diversity of the region, we expect investors to start taking notice of this sector with their acquisition appetite, just as they have in other regions like Texas and Florida.

Dean Zang of Marcus & Millichap

Publix, a customer favorite, is in the early stages of identifying new locations in Northern Virginia’s Interstate 95 corridor as the Florida-based chain continues its northward expansion. Although grocery insiders do not believe the chain will continue further north than Stafford, due to land costs and labor constraints, the question is still worth asking: Will Publix come to D.C. by acquiring another grocery chain?

Retail has had its challenges in the last year with the COVID-19 restrictions imposed during the pandemic. Gyms, daycares and sit-down restaurants have been in the crosshairs of restrictions, causing many permanent closures in the region. However, Placer.ai, a cellphone geofencing application that tracks consumer traffic, indicates that gym traffic has returned to near pre-pandemic levels, with discount gyms faring the best.

Significant restaurant vacancies have also appeared in both D.C. and Baltimore, but leasing velocity remains heavily concentrated in the restaurant sector, which commands more than 50 percent of the leasing activity.

Quick-service restaurants (QSRs) have fared far better, and certain chains like Chick-fil-A have even migrated toward prototypes with no indoor seating, instead utilizing a simple drive-up window and dual drive-thru. Daycares appear on the mend with new names like Everbrook Academy (opening soon in Woodbridge and Perry Hall) and Guidepost Montessori (located in Rockville and Waldorf) emerging in the region. Tatte Bakery & Café — which is located in D.C.’s West End, Dupont Circle, Bethesda and Clarendon — is a new upscale sit-down café with additional sites in the works.

Wawa continues its urban and suburban rollout around the area. Infill suburban sites are scarce, so the company has reverted to its roots with a convenience store-only prototype. A few locations are rumored to be opening around Arlington, Montgomery and Fairfax counties as well. Competitors Sheetz, Royal Farms and Dash-in are also active, with Sheetz making a notable push into Northern Virginia and offering landlords aggressive rental rates not previously paid by the chain.

In suburbia, we have noticed that everyone’s cars seem to be cleaner. We attribute this phenomenon to the national car wash boom that is also ongoing in the region. Autobell and Edge are among the several new names bringing competition to the region’s incumbents. We expect these chains to snatch up bank locations that continue to close.

PNC recently announced another nine sites to close. Similarly, the BB&T/SunTrust merger has produced numerous overlapping branches that the chain recently notified owners of their plans to close. It is rumored an additional round of BB&T/SunTrust closures are planned for next spring.

In 2020, investment sales of retail properties in the region mirrored sluggish national trends. However, sales have experienced a robust recovery this year, and perhaps even some over-compensation. Most brokers in the region are reporting a year of career bests, fueled by a unique market dynamic that was unforeseen by many. Recovery drivers include pending changes to tax policy (notably 1031 exchanges), exceedingly low interest rates and pent-up investor liquidity from 2019 and 2020 that have combined to lead to significant transaction velocity this year.

Liquidity is quickly growing for retail investments at price points from $1 million to well over $100 million. Institutional investor interest remains strong, but is very selective and focused on core assets, which trade less often. Pension funds that have focused on multifamily and industrial acquisitions over the last five years are expected to dive back into retail in 2022 to rebalance investor portfolios.

Private equity funds have been the most aggressive in utilizing cheap money to achieve outsized returns. Demand from private capital has accelerated over the last few years and transaction size has grown as investors seek either an inflation hedge, or a transition out of other property types. New names are growing their portfolios and they are not the multi-generational family offices known by most in the region.

As the calendar turns to 2022, we expect a continued evolution of the buyer pool. Buyer, sellers and lenders are all on the same page right now, and it’s a good time to be in retail. As the old idiom says, “Make hay while the sun shines.”

— By Dean Zang, Executive Managing Director of Marcus & Millichap. This article originally appeared in the November 2021 issue of Southeast Real Estate Business. David Crotts and Josh Ein of Marcus & Millichap co-authored the article.

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‣ Lee & Associates
‣ NAI Global
‣ Walker & Dunlop

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