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Multifamily Buildings With Premium Groceries Can Charge More Rent

The Dalian on the Park apartment building on the Benjamin Franklin Parkway in Philadelphia.

The value a premium grocery store adds to a neighborhood has been well documented, but new research suggests the benefits reach an even more granular level.

Apartment buildings with either a Whole Foods or a Trader Joe's on the ground floor bring in an average of 5.8% more rent than comparable buildings in the same submarket, a new report from RCLCO Real Estate Advisors has found. Buildings with other brands of premium grocery stores garner 3.3% more rent on average.

The "Whole Foods effect" in real estate parlance refers to the boost in property values that residential and commercial buildings enjoy when near the high-end, organic-focused grocery store. Even accounting for that and adjusting for quantitative and qualitative differences, RCLCO found that the buildings housing Whole Foods and its competitors still outpace their neighbors in terms of rents, and do so at a growing pace.

In 2016, RCLCO found that Whole Foods conferred a 4.3% rental premium for apartment buildings they anchored, while Trader Joe's corresponded with 3.2% higher rents. Other brands were not part of the 2016 study. 

Critically, the higher rents do not seem to be met with any sort of resistance from local renters. New buildings with premium grocers at the ground floor lease up at the same rate, or in many cases faster, than comparable buildings in the same submarket, according to the RCLCO report. Perhaps because of the excitement of the new store, such buildings tend to bring in what RCLCO calls "more than their fair share" of renters during lease-up, before stabilizing to fair market share of absorption as they remain open.

The Axiometrics data that RCLCO used for its study was gathered in April, so the numbers don't reflect any effects of the coronavirus pandemic