The appearance of a new Whole Foods Market or Trader Joe & # 39; s can be controversial – a welcome neighborhood convenience for some, a sure sign of gentrification for others. The question is: does the presence of a high-end grocer directly cause rent increases?
RCLCO, a real estate consultancy, took a long look at how a high-end street-level grocer of a rental building would affect initial rents, rent increases over a year, and the rate at which the new building is being built are apartments rented, known as "absorption".
To do this, the researchers compared 64 rental housing projects across the country using a Whole Foods, Trader Joe, or other high-end grocer on the ground floor to similar buildings nearby without one. Adjusted for the differences between buildings, they found how much rental premiums, rent increases, and absorption were due to the existence of the business. (The study was completed in April 2020, so the effects of the coronavirus pandemic are not reflected in the results.)
There were two takeaways: a premium grocer in the building rewards the landlords, and through these measures, the Trader Joe & # 39; s trademark appears to have overtaken the competition.
At the street level, Whole Foods was found to increase initial rents by an average of 5.8 percent compared to comparable buildings – just like Trader Joe did. That's an increase from 2016, when the RCLCO study found a rental premium of 4.3 percent for a whole-food building and a 3.2 percent premium for a Trader Joe. Other high-end grocery chains also impacted rents, increasing them by an average of 3.3 percent compared to similar properties without one.
Higher rent increases in wholefood buildings typically followed higher initial rents; less in buildings with a trader joe. Absorption in buildings with a high-end grocer often exceeded that of comparable neighborhood buildings, but was typically reconciled to neighborhood standards within about 10 months, the report said.
Without the effects of the pandemic, this is all good news for developers who can see the benefits of a popular grocery store. But for tenants already displaced from a posh neighborhood, the appearance of a Whole Food or Trader Joe in a new building – even if it's not their building – could well mean they have been priced out.