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Hungry For Grocers: Bay Area Stores Expanding Into New Types Of Real Estate

Grocery stores are popping up all over the Bay Area to help feed the growing population. Grocers are anchoring retail and multifamily developments, providing both a place to shop and an amenity for local residents.

Hungry For Grocers: Bay Area Stores Expanding Into New Types Of Real Estate
Woodlands Market inside Tishman Speyer's Lumina in San Francisco

Whole Foods, Sprouts, Trader Joe's, Nob Hill Foods and other Bay Area-based grocery stores have expanded into new locations within the last few years, filling in gaps where the population has blossomed. The Bay Area’s population also consists of high-income earners seeking out high-end grocery stores.

“Due to our region’s rapid economic expansion in income levels and apartment construction, we now have wealthier residents in higher-density areas,” CoStar San Francisco Market Economist Jesse Gundersheim said.

Hungry For Grocers: Bay Area Stores Expanding Into New Types Of Real Estate
Source of data: CoStar Portfolio Strategy

San Francisco’s urban core is the third-most-dense metro in terms of residents per square mile behind New York and Orange County, according to data from CoStar. The East Bay is the sixth-most-dense metro.

Compared to population, the Bay Area has relatively minimal levels of grocery stores. San Francisco has 2.6 SF of grocery inventory per resident, San Jose has 3.3 SF and the East Bay has 3.8 SF. The average among the top 54 metros is 4 SF/resident. Only New York, Honolulu and Northern New Jersey contain less grocery space per resident than the San Francisco area, which includes San Francisco and San Mateo counties, according to CoStar.

Retail vacancy also is well below its pre-recession average and there has been minimal retail supply growth within the last three years, meaning there is plenty of room to grow.

Hungry For Grocers: Bay Area Stores Expanding Into New Types Of Real Estate
Sprouts Chief Development Officer Ted Frumkin

Sprouts has been among the most active stores to expand throughout the Bay Area, most recently opening a store in Newark in July. It also has expanded to Brentwood, Albany, Pinole and other Northern California cities. It plans to open a store in Sacramento in early 2018.

“Bay Area residents are typically very health-conscious, highly educated and appreciate the value that Sprouts offers to help them live a healthy lifestyle for less,” Sprouts Chief Development Officer Ted Frumkin said.

Sprouts stores are typically in dense neighborhoods in sites that are accessible, visible and convenient. Abundant parking and good signage also are important, Frumkin said. The layout, which favors an efficient shopping experience, tends to be smaller than conventional grocery stores. Sprouts plans to expand into additional site locations that do not impact its existing store base.

An Amenity And A Tenant

Hungry For Grocers: Bay Area Stores Expanding Into New Types Of Real Estate
Woodlands Market founder Don Santa and Tishman Speyer Senior Managing Director Carl Shannon

Developers with dense residential projects have been pushing for grocery stores that can double as a building amenity. Whole Foods will partially anchor CityLine Sunnyvale in downtown Sunnyvale. It also anchors Irvine Co.’s Santa Clara Square Marketplace. Whole Foods 365 will open at Concord’s newest shopping center in December. Expansion may not be as easy in the future. The Amazon-owned business was denied a lease at the City Center mall in San Francisco after Target stepped in and used its lease agreement to keep Whole Foods out.

Local brands will have less trouble expanding. Marin County’s Woodlands Market added a San Francisco store over the summer, anchoring the ground floor of Tishman Speyer’s Lumina.

“We see the grocery store as an important amenity for our residents and the neighborhood as a whole,” Tishman Speyer Senior Managing Director Carl Shannon said.

Before Woodlands Market, there was a gap between the Safeway at Golden Gateway just north of Embarcadero and the Ferry Building and the Safeway near the AT&T ballpark, Shannon said. Having a grocery store inside Lumina has helped the developer attract residents who want to live close to jobs, transit and the 24/7 lifestyle.

“Residents can run downstairs and pick up wine and cheese and crackers [and not] get in the car and drive to Safeway,” Shannon said.

Fifteen years ago, South of Market consisted largely of low-rise industrial buildings and textile factories. Since then it has turned into a residential community with 2,500 residents in Tishman Speyer’s Lumina and Infinity buildings alone, Shannon said.

Hungry For Grocers: Bay Area Stores Expanding Into New Types Of Real Estate
Inside Woodlands Market in San Francisco

“The community was relatively underserved. A bit of a void was created there because of the amount of new housing and buildings going in there,” Woodlands Market founder Don Santa said.

After opening, Woodlands Market is 30% higher than where Santa thought the store would be a month after its grand opening.

Woodlands Market may consider additional locations, but as a smaller neighborhood market, it has expanded slowly to three stores in 30 years. The Marin grocer opened its second store in Tiburon six years ago. For now, Woodlands Market is enjoying the growing interest at its San Francisco location.

About 10,000 residential addresses are within a half mile of the Woodlands Market, according to Shannon.

“All of those residents benefit from a grocery store within walking distance of where they live,” he said.