Why is investing in supermarket real estate worthwhile?

The supermarket sector is a stable sector, which has proven to be crisis, e-commerce and now also pandemic resistant. Due to the steady disappearance of local bakeries, butchers, greengrocers and newsagents, as well as the stable share of food in consumer spending, the supermarket sector is growing a net 2% per year. In 2020, as a result of the corona problem, the supermarket sector even grew by more than 10%, partly due to the compulsory ‘work from home’ and the periodic closure of the horeca.

Despite the economic crisis caused by the Corona pandemic, food spending in Belgian supermarkets continues to rise steadily. Due to all kinds of government measures and the growth of savings accounts, a large part of the average consumer also retains its purchasing power. Moreover, the Belgian citizen continues to spend a stable share of his/her income on food, even when the economy temporarily slows down. And that has not gone unnoticed by the supermarket sector. The arrival of supermarket chains such as Jumbo and the ambitious expansion plans of Delhaize/Albert Heijn, Lidl and Carrefour prove that there is still room for new investments, especially in the food segment.

Aside from that, the rent level of supermarkets is on the low side, around 100 euros/m²/year in Belgium and between 150 and 200 euro/m²/year in the Netherlands. This is in line with the rent of retail warehouses. In addition, rent only accounts for 2 to 4% of turnover, significantly lower than the 10 to 20% of turnover that high-street shops pay in rent. In addition, the supermarket operator itself invests a considerable sum – 1.500 to 2.000 euros/m² – in the furnishing and installations of the store, which makes moving the store to another location expensive. Leases for supermarkets are also usually signed for 9 to 27 years. These facts limit the rental risk for Forum Estates, thereby facilitating a long and sustainable tenant-landlord relationship.

Shopping behaviour is changing

We expect the current social trends to continue in the coming years and to be reinforced by the corona pandemic. Large families, and therefore large packaging, are disappearing. Consumers increasingly demand quality, pay attention to fresh and healthy food, and want an inspiring shopping experience. The concept of ‘Food’ and ‘Foodservice’ will increasingly intertwine in the market, as the clear trendsetter Jumbo in the Netherlands demonstrates with the ‘marriage’ between Jumbo and La Place. Consumers do not only want to buy individual ingredients but also demand ‘ready-to-cook’, ‘ready-to-heat’ and ‘ready-to-eat’ concepts. In the United States, Amazon-owned 7-11 and Whole Foods show that these concepts successfully increase margins and sales. The supermarket will also play an increasingly important role in 360° customer fulfilment, as a meeting place to grab a bite to eat, buy a newspaper or pick up a package. Therefore, investing in real estate that focuses on such supermarket concepts remains our ‘core business’.

The new vision of the supermarket sector

The supermarket sector is, however, competitive. With Mere, a Russian player has joined the lower end of the market. After Albert Heijn, Jumbo opened a number of first supermarkets in Flanders in 2020. This Dutch supermarket chain has the ambition to establish more than 100 stores in Belgium. Jumbo wants to be a cheap supermarket with a concept where, in addition to shopping, consumers can also experience, drink and eat something. We also notice this tendency among our other tenants, who have strongly adapted their concepts to this reality in recent years. The ‘new format’ Carrefour Express and Market, Proxy Delhaize, Lidl and Spar supermarkets are gems where consumers like to shop. In addition, those supermarkets often have an online channel from which the customer is supplied from the store. Forum Estates, therefore, focuses its investments on locations and brands that are future-proof and fit in with its strategy.

Within the BeNeLux, especially in the city centres, the oversized supermarkets and hypermarkets that focus insufficiently on experience will make way for cosy convenience stores. Forum Estates then mainly focuses on local stores of 400 to 2.500 m², focusing on convenience and cosy. Therefore, we remain in close contact with our current loyal tenants to develop possible opportunities and new concepts together.

The first BeNeLux supermarket real estate investor

The Board of Directors decided early 2021 to further expand to the Netherlands. The Dutch supermarket landscape is known as a very consolidated but also very stable market. Albert Heijn (35%) and Jumbo (21.5%) together have more than half of the market share in the Netherlands and vigorously defend their market share. As in Belgium, the average turnover of Dutch supermarkets increases annually, excluding the current ‘Corona effect’, by approximately 2% per year. This is due to the rise in average incomes, smaller households purchasing more ‘ready-to-eat’ meals, and the slight increase in the share of food in total household expenditure. Therefore, this market offers Forum Estates the necessary growth perspectives as well as a greater geographical and tenant risk spread.

The market of Dutch supermarkets is characterised by long, irrevocable leases of at least 5 to 10 years. Moreover, the planning permit policy is stringent, which creates a certain scarcity and stability on the market. Supermarkets in the Netherlands are often located in the centre of a neighbourhood or city centre, with a number of ‘convenience stores’ such as Kruidvat or a local bakery or butcher located next to it. Moreover, Dutch consumers do their shopping almost daily. This makes proximity and customer fidelity particularly important and generates great stability for supermarket operators. Forum Estates has meanwhile identified a number of interesting supermarket prospects in the Netherlands, of which the first three supermarkets were purchased in May.

We intend to make Forum Estates the first supermarket real estate investor in the BeNeLux. In the coming months and years, we will continue to acquire supermarket real estate assets in the Netherlands, so as to consolidate our position in the Netherlands, our second home market. While Luxembourg is a much smaller market, Forum Estates consider it as being interesting as well, and already acquired six lettable units in 2021.