Surging food spending drives recent gains in restaurant, grocery real estate

The retail sector is continuing to reap the rewards of post-pandemic consumer spending patterns, as Americans are continuing to spend more than they did before the COVID-19 health crisis, according to Marcus & Millichap. But with new risks surfacing, shopping preferences are shifting again, which could have a big impact on retail real estate.

Core retail sales in June were up nearly 27% compared to pre-COVID levels, Marcus & Millichap reported in its latest Retail Sales Research Brief. Consumers are once again flexing the freedom to dine at restaurants and drink at bars, with spending at such establishments up 1% monthly in June and accounting for $86 billion in monthly sales.

The growth in restaurant and bar spending has moved the needle when it comes to single-tenant leasing. Restaurant vacancies dropped to a three-year low in June, rebounding after rising above 5% in 2020.

But swelling inflation has taken a toll on food prices, which climbed 10.4% year over year in June. Consumer confidence, subsequently, has dipped to its lowest point since February 2021, Marcus & Millichap noted. This has triggered a shift in spending from discretionary items such as recreation and entertainment to necessities. While food certainly fits in the latter category, it remains to be seen whether consumers will continue to dine out as inflation remains widespread.

Meanwhile, grocery spending rose 8.3% annually in June, a big increase from the 2.2% gain seen one month prior. Such a surge in spending in the midst of inflated food costs is adding fuel to the expansion fire stoked under many large supermarket chains this year.

Aldi, for example, has 150 new stores planned for 2022. Some 3.2 million square feet of new grocery space was underway as of mid-July, Marcus & Millchap reported. Meanwhile, grocery expansion also has caught the eye of investors, with deals involving supermarkets or shopping centers anchored by supermarkets up by 50% during the year ending in June.


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