Most people in real estate are familiar with the “Whole Foods Effect”—the premium added to the value of apartments that have a Whole Foods on the ground floor—but the actual numbers behind that effect may not be clear. A recent report from RCLCO Real Estate Advisors demonstrates how the effect has held up over time.
In 2016, RCLCO sought to understand what effect the presence of a Whole Foods has on the value of an individual real estate investment from the perspective of the owner or a developer—questions that had, until the analysis, largely gone unanswered. In its 2016 analysis, RCLCO found that ground-floor Whole Foods tenants add value to developments by driving rental premiums, enhanced absorption, and accelerated rent growth.
Since the analysis in 2016, the high-end grocer market has changed in ways small and large, prompting RCLCO to reexamine the findings of the prior analysis. Two important questions emerged: first, since its acquisition by Amazon, has Whole Foods’ impact on apartment performance changed in recent years? And second, are other premium grocers, including up-and-coming or regional brands, able to replicate the success of Whole Foods as ground-floor tenants and drive similar premiums for apartment communities?
Some of this report’s findings include:
- Apartment communities with a Whole Foods on the ground floor achieve, on average, a rental rate premium of 5.8% above comparable apartment communities in the immediate local area, after adjusting for qualitative and quantitative differences among these communities. This represents an increase of 1.5 percentage points relative to RCLCO’s findings in 2016, Whole Foods buildings earned only a 4.3 % premium.
- Union Denver apartments, which has a Whole Foods on the ground floor, achieves a 2.20% rental rate premium, compared to area comps.
- Communities with a ground-floor Trader Joe’s earn the same premium—5.8%—as those that contain a Whole Foods. In 2016, the gap between buildings with Trader Joe’s and Whole Foods was significantly wider—Whole Foods buildings achieved a 4.3% premium, which is one percentage point higher than the 3.2% achieved by Trader Joe’s buildings. However, over the past several years, that gap has diminished, with Trader Joe’s conferring a comparable premium to apartment rents as Whole Foods.
- Other Premium Grocers, which were not included in the 2016 analysis, drive a lower—but still meaningful—premium of approximately 3.3%.
Read the full report here.
