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Publix's Impact on the Real Estate Market

Publix: The Growth of Self Owned Shopping Centers

One of the nation’s top grocery store chains isn’t just a super market anymore, it is becoming a major player in the real estate investment  market.  Publix Super Markets is not only building retail locations, but it is purchasing its own stores and self-anchoring its own shopping centers.

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Publix is a Florida based retailer that has found ways to steadily increase its ownership of retail and real estate across the state. As of 2017, the grocery tycoon owned 371 of its 1,167 stores, which accounts of nearly one-third of its overall locations. That is a 12 percent increase from 2016 and 89 percent jump over a five-year period from 2011 to 2016.

In December 2017, Publix paid about $322 per square foot or $25.45 million for the Lakeview Shopping Center in Coral Springs, FL, which allowed for the grocery center to be the anchor. Earlier in 2017, Publix purchased the Mirasol Walk Shopping Center in Palm Beach Gardens, FL for $47 million, which equated to $443 per square foot.

According to DDRM Properties and Madison International Realty, they sold a total of nine locations to Publix for an undisclosed price. Eight of the Publix retail centers were in Florida and one located in Georgia.

Publix is a privately held company, where its stakeholders are its employees and it its known for having out of this world customer service. The retail giant highlights its spotless stores as a key selling point and has earned the slogan “Where Shopping is a Pleasure” from its customers.

While has been impacting the commercial real estate development sector, it is not the only grocery store that is changing the way it invests in properties. Just last year, in 2017, Amazon acquired Whole Foods Market. Based on recent reporting, the company only owns four percent of its stores or 17 of 470 retail locations.

Kroger and Walmart have also made different investment decisions within the last several years, with Kroger Co. stating in their most recent public filings it prefers to purchase shopping centers instead of rent or lease.  In their 2017 reporting, Kroger Co. did not provide insight into how many of its 2,800 stores it owns. Walmart has not released any physical numbers into how many locations that is owns but did reveal they typically own stores and lease the Neighborhood Market outlets.

Retail analysts have inferred that owning stores is a financially smart decision and makes sense for most grocery store chains. Brandon Fletcher, an analyst for Bernstein & Co. has found that one of the biggest selling points for retailers in owning a location is the ability to avoid costly leases and renewal, which also includes the possibility of paying a higher rent on locations with higher traffic patterns.  By owning a center, grocery retailers can control the tenant mix as well as avoid the issues that are often incurred through working with a landlord that is unwilling or unable to maintain the center.

In the past, any tenant was almost guaranteed to be successful when placed next to a Publix Supermarket but it’s important to understand that we are in an era where many brick-and-mortar retailers are struggling to adapt due to the rise in e-commerce. Fletcher, states that in years past tenants would be successful when placed at any shopping center but today’s landlords and inability to compete with e-commerce there is an inability to predict their success. 

A retail specialist at Colliers International South Florida, Katy Welsh, states that “Publix and other shopping center anchors that rent their spaces already exert considerable influence over neighboring tenants.”

Welsh believes the that ultimately the decision to buy comes from a simple premise, “it’s a savvy, long-term investment.” This comes from the fact that Publix retail centers are considered to be the cream of the crop for landlords because they are able to benefit from its own success as a retailer.

More recently, Beth Azor, a South Florida retail consultant, reported that owning a center is a great way for Publix to diversify its income. “The grocery business is a very low-margin business, which can be increased by collecting rent from other tenants in a center.”

In 2017, Publix reported earnings of $2.3 billion, which was an increase from $2 billion in 2016. The increase in growth is proof the grocery giant is fast-growing and that it is on track to be a cash-rich company. Furthermore, Publix has proven it has real estate prowess and is becoming well known in the real estate market. Barry Wolfe, a retail specialist from Marcus & Millichap in Fort Lauderdale, has observed that owning isn’t ideal because real-estate is capital-intensive, but Publix has the ability to expand due to their well-known prowess in the industry.

Publix is one of the few retailers that understands the real estate market and has the capability to be the challenge its competitors, which can be extremely difficult from a buyer’s point of view.