The right anchor tenant can unlock value in any retail business

Before the pandemic, it was a truism that malls lived or died based on their anchor tenant. One “black swan” economic stop later and they have proven their indispensability. According Gene MelloVice President of Leasing at Matthews Real Estate Investment Services.

“The anchor tenant is the heart and soul of any project,” says Mello. “Every mall needs one or more anchor points to stand the test of time. They remain essential in today’s environment and are still the most important piece of the puzzle.

The grocery store is always a winner

Basically, a strong head tenant has good credit and a reputable name, and usually landlords choose a retailer of goods or services, but grocers are the most popular and sought after. Mello says most landlords want a grocery store because the daily needs component creates foot traffic for other roommates. Plus, as he puts it, “At the end of the day, everyone has to eat eventually, so risk is always limited with the right grocer.” Grocery stores have been the preferred physical anchor for more than a decade because they’re considered internet-resilient, but the strength of the sector thanks to the pandemic has solidified the grocery store as a top choice for homeowners.

In addition to grocers, soft-goods retailers like Ross, TJ Maxx, and Burlington Coat Factory or non-food service retailers, such as home improvement stores (e.g., Home Depot or Lowe’s), are also popular options for the anchor slot.

Look to market research

Choosing the right anchor tenant for a property and the surrounding market is determined by research. Owners and their brokerage teams leverage a variety of data points (demographics, traffic patterns, local economic growth) to determine the best type of retailer for the location.

“We break down a market to determine what’s missing, and all of that is key to determining the dynamics of who is the right anchor tenant,” Mello says. Market research can show that a market is oversaturated with one type of retailer or lacks the density to support another.

Retailers want to be in California

Retailers executing national expansion plans will typically allocate 15-20% of new locations in California. The Southern California market, in particular, enjoys a large population, diverse demographics, and pleasant year-round weather. “Retailers know they can achieve a higher percentage of sales due to the density and overall consumer spending numbers in this market,” Mello says.