The national volume of sales of grocery-anchored retail centers grew 6.6%

Don’t doubt the power of produce.

Not much is expected in the way of new retail construction in 2010, but there is a cluster of projects underway bucking the trend that have a common thread: a grocery store as an anchor destination.

Brentwood-based PGM Properties LLC, Florida-based The Barclay Group and Franklin-based Southern Land Co. have all recently broken ground on grocery-anchored retail centers. Though some have been on the drawing board for some time — Southern Land Co. originally expected its Whole Foods at the company’s McEwen development in Williamson County to be open last fall, and The Barclay Group originally planned to open its Publix-anchored Market at Salem Cove in Murfreesboro in early 2009 — the projects point to a relative strength in the retail arena.

According to data from California-based Marcus & Millichap Real Estate Investment Services, the national volume of sales of grocery-anchored strip centers grew 6.6 percent in 2009, to $3.2 billion worth of transactions. The sales volume of single-tenant and multi-tenant retail sites, however, fell by 33 percent and 56.3 percent, respectively.

“From a retail perspective, grocery-anchored retail tends to be necessity-oriented,” said Paul Gaither, a senior vice president at the Nashville CB Richard Ellis office. While consumers may be spending less at grocery stores at the moment, for instance, they’re at least still going inside. As a result, such developments are taken as a safer bet by lenders and private investors.

While other retail centers may have 10-year leases and cotenancy stipulations (which allow Tenant A to get out of their lease if Tenant B leaves), grocery stores tend to have longer leases of up to 25 years, a big plus in a time of instability.

Having a grocery store as an anchor tenant doesn’t remove all risk for a retail landlord, however. As Gaither notes, “If they ever leave, you’re in deep trouble.”

It’s not unheard of. As noted by Dudley Parker, a principal with PGM Properties, whose Publix-anchored Bowie Commons is to open early next year, Bi-Lo and Winn Dixie stores have gone out of business. Just the same, he said grocery stores are “about as stable of a tenant as you can get in today’s market.”

Even with a tenant with good credit, financing still can be difficult, said Paul Neuroth, senior vice president of retail leasing for Southern Land Co., who said the firm’s Whole Foods project was delayed while “funding had to catch up with the deal itself.”

Jimmy Granbery, CEO of Nashville-based H.G. Hill Realty Co. LLC, said grocery-anchored developments have been the mainstay of retail development, even in the good times.

However, they are changing with the economy. For instance, developers are decreasing the amount of additional retail space, in the form of a strip center or outparcels, that accompanies a grocery anchor. A project that may have once called for 20,000 square feet of additional retail may now call for 10,000 square feet. H.G. Hill is completing a Publix-anchored center on Charlotte Avenue in West Nashville, that will include 15,000 square feet of retail space.

And as Gaither said, “There’s just fewer retailers looking for space.” According to CB Richard Ellis, Nashville-area retail vacancy continues to hover around 6.7 percent.

Though grocery centers are persevering, their construction doesn’t portend a recovery for the overall retail sector.