Grocery-Anchored Retail: Below-Market Anchor Rent, Inline Roll-Up, and the 2026 Cap Rate Stack

Key Takeaways

The Grocery-Anchored Cap Rate Stack: 2025 Average and Tier Spread

Per JLL's Grocery Tracker 2026, grocery-anchored cap rates averaged 6.7% nationally at the close of 2025, about 40 basis points below the 2023 cyclical peak. Against the 10-year Treasury at 4.18% on December 31, 2025 (FRED DGS10), that is a spread of 252 bps.

The national average hides a wide dispersion by anchor quality. JLL's 2022 Grocery Tracker, which covers 2021 transactions and is quoted by First National Realty Partners, reported that high-priced grocery centers traded at average cap rates of roughly 5.8% while their discount and mid-tier counterparts priced on average around 7.1%, a 130 bps wedge. JLL's 2026 tracker publishes the national average but not a tier-level stack, so treat 5.8% and 7.1% as the shape of the dispersion rather than 2026 prints, and replace them with current comps for the banner and market you are underwriting.

The wedge is the priced expression of three structural anchor differences. First, anchor credit: the obligor on the lease matters more than the banner on the door, and a public parent, a private operator, and a thinly capitalized regional operator carry different downside. Second, draw: JLL's foot-traffic data shows Trader Joe's same-store visits up 10.4% in 2025, Whole Foods up 9.8%, and Aldi up 8.3%, against 0.3% for Kroger, and traditional grocers' share of foot traffic fell from 75.1% to 73.2% since 2019. Third, store-growth signal: CBRE reports that Whole Foods and Sprouts each plan to open between 25 and 40 stores in 2026, and both CBRE and JLL put Aldi at 180 openings, which institutional buyers read as a forward demand signal for the anchor cohorts that are gaining visits.

The capital-markets context behind these prints: JLL's Grocery Tracker 2026 documents nearly $11 billion of grocery-anchored transaction volume in 2025, a 42% year-over-year jump, with institutional share at 27%, the highest in over a decade. CBRE's 2026 brief on grocer expansion cites MSCI data putting grocery-anchored investment volume at $12.8 billion last year, its largest rolling-four-quarter total since 2022, and notes that 85% of retail investors in CBRE's 2026 North American Investor Intentions Survey favored grocery-anchored centers, the most preferred retail format by a wide margin. In ICSC's roundup, J.P. Morgan's head of real estate banking described the strongest valuations in a decade across active shopping centers, excluding regional malls. JLL's conclusion is that the future belongs to properties anchored by the grocers capturing visit growth, which is why the bid is concentrated by anchor rather than lifting the whole class evenly.

Why Grocery Is the Resilient Anchor Class

The "grocery is recession-proof" framing is a trade-press headline. The institutional version is more specific. Consumers spent more than $915 billion on groceries in 2025, up 3% from 2024 and 21% since 2020, according to CBRE's reading of Census Bureau data. JLL measures grocery-anchored vacancy at 4.0% against 6.3% for non-anchored centers, with availability at 4.7% and an NNN rent premium of 4.4% for grocery-anchored space. E-commerce is a variable to underwrite, not a non-factor: JLL projects online grocery sales reaching $228 billion by 2030, over 23% of total grocery spending, and describes the store becoming an e-commerce fulfillment engine. CBRE adds that physical store shopping still accounted for most of the recent sales growth.

Post-2020 the institutional thesis sharpened on three observations. First, grocery foot traffic is growing: CBRE, citing Placer.ai, reports that visits increased across all grocery formats in 2025, with fresh-format operators like Whole Foods and Sprouts up nearly 10% as consumers favored alternatives to eating out. Second, restaurant pricing rose nearly 60% over the past 10 years while grocery prices rose 30%, per CBRE, roughly a 2-to-1 gap that favors at-home food spend. Third, grocers are using stores as fulfillment nodes for curbside and in-store pickup, which ties the box more tightly to the grocer's omnichannel model. The caution is in the other direction: CBRE notes grocery's share of total retail spending has declined by 1 percentage point over the past decade, so the thesis rests on traffic quality by anchor, not on a rising tide.

PECO, one of the nation's largest owners and operators of grocery-anchored neighborhood shopping centers, prints a public benchmark on operating metrics. As of March 31, 2026, PECO managed 326 shopping centers, including 299 wholly-owned centers comprising 33.7 million square feet across 31 states and 27 centers owned in three institutional joint ventures. The wholly-owned portfolio was 97.1% leased, and PECO's FY2025 10-K reports that 83.3% of ABR came from centers anchored by the #1 or #2 grocer by sales in their trade area. In Q1 2026 PECO executed comparable renewal leases at a 21.2% rent spread, comparable new leases at 36.2%, and reported portfolio retention of 87.8% (91.4% in Q1 2025). That is on-the-ground evidence for the thesis: the inline lease roll is where the NOI compounds, and the anchor is what makes the roll possible.

Below-Market Anchor Rent: The Subsidy Mechanism

The most important institutional concept in grocery-anchored underwriting is also the one sponsor-tier content misses. Grocery anchors do not pay inline rent on the box they occupy. In PECO's wholly-owned portfolio, anchor spaces (10,000 SF or larger, grocery and non-grocery) averaged $10.74 PSF of ABR in Q1 2026 against $27.34 PSF for inline space, so anchor rent per square foot was about 39% of inline rent. The anchor's traffic externality underwrites the inline rent premium that drives the center's NOI. The anchor is not the cash-flow tenant; the anchor is the demand-generator the landlord pays, via a rent discount, to make the inline lease roll work.

Work the arithmetic on a 75,000 SF grocery-anchored center, using illustrative assumptions anchored on PECO's averages: a 45,000 SF grocery anchor at $11 PSF NNN ($495,000), and 30,000 SF of inline shop space at $27 PSF NNN ($810,000). Total ABR is $1,305,000, or $17.40 PSF. The anchor is 60% of GLA but 38% of ABR; the inline space is 40% of GLA and 62% of ABR. Assume a market-clearing rate of $20 to $25 PSF for the anchor box (illustrative), so the subsidy is $9 to $14 PSF, or $405,000 to $630,000 a year across 45,000 SF.

Now compare a simple all-inline alternative on the same 75,000 SF, where the absence of an anchor lowers traffic and inline rent compresses by 20% to $22.50 PSF ($27 ÷ 1.20), the midpoint of the 15% to 25% rent premium CBRE attributes to ICSC. The anchored premium is $4.50 PSF on 30,000 SF, or $135,000 a year, which covers only part of the $405,000 to $630,000 anchor discount. The payoff therefore has to come through the cap rate and leasing risk. Treating NNN ABR as a stand-in for NOI, the anchored center is worth $1,305,000 ÷ 5.8% = $22.5 million ($300 PSF) at a high-priced-grocery cap rate, and $1,305,000 ÷ 7.1% = $18.38 million ($245 PSF) at a discount and mid-tier cap rate: the tier alone moves value by $4.12 million, or 18%. The all-inline alternative produces 75,000 × $22.50 = $1,687,500 of ABR, which is worth $23.77 million at 7.1%. It matches the anchored center's $22.5 million only at a 7.5% cap rate ($1,687,500 ÷ $22,500,000), which is 170 bps over the 5.8% anchored print. That 7.5% break-even is the number to test against local unanchored comps. The comparison also leaves out the tenant improvements, downtime, and commissions an anchorless lease-up carries, which are part of the case for the anchor.

The institutional reading: the anchor rent line on the rent roll is not where you assess NOI quality. The inline rent roll, the rollover schedule, and the historical leasing-spread data are. PECO's 21.2% comparable renewal spread in Q1 2026 is a public benchmark for what a well-anchored inline roll-up looks like. A grocery-anchored center where the anchor pays inline-level rent and the inline pays below-market is a center where the underwriter has misread which lease is the demand-generator and which is the cash-flow generator.

Percentage Rent and the Natural Breakpoint

The vocabulary that follows below-market anchor rent is percentage rent. An anchor lease may include a percentage-rent provision: the anchor pays a contractual base rent (the below-market line) plus a percentage of gross sales above a contractual sales threshold called the natural breakpoint. The mechanism converts a portion of the anchor's outperformance into landlord upside without negotiating a new rent at each renewal. Whether a given lease has the clause, and at what rate, is a lease-by-lease fact.

The breakpoint math is mechanical: natural breakpoint sales = annual base rent ÷ percentage-rent rate. For a hypothetical anchor paying $495,000 base rent on a 45,000 SF box with a 1.0% percentage-rent rate (an illustrative rate), the breakpoint is $49.5 million in annual store sales, or $1,100 PSF. Above the breakpoint the anchor pays 1.0% of every incremental sales dollar; below, the anchor pays only base rent. A store would need to be a strong outperformer to clear a breakpoint that high: in the example below, a $58 million store ($1,289 PSF, about 17% above the breakpoint) pays $85,000. That is about 38 bps of value on the $22.5 million center valued above and 6.5% of its $1,305,000 ABR. At sales below $49.5 million the clause pays nothing, so it should be modeled from the lease and reported store sales, not assumed.

Two structural notes for the underwriter. First, sales-reporting and audit-right covenants matter. The percentage-rent clause is only as enforceable as the sales-reporting frequency, the audit rights over store-level sales records, and the cure provisions if the anchor refuses or under-reports. Read the lease abstract for these. Second, the percentage-rent rate is negotiated lease by lease, and the breakpoint moves with it: at a 0.5% rate the same $495,000 base rent implies a $99 million breakpoint, and at 2.0% it implies $24.75 million.

The Anchor-Tier Hierarchy: Ranking by Banner

Below the cap-rate stack sits a deeper ranking that drives the bid: anchor banner by credit, draw quality, and store-growth signal. The hierarchy is not formally published. The table below is our own working framework, built from the visit and store-opening data in JLL's Grocery Tracker 2026 and CBRE's 2026 grocer-expansion brief. It is a starting point for diligence on the actual lease obligor, not a substitute for it.

Our working anchor-tier framework. Institutional buyers price the tier into the cap rate through credit, draw, and forward demand signal. Visit growth and opening counts are from the cited JLL and CBRE reports; credit notes are diligence prompts, not ratings.

Two tier-specific notes. First, Trader Joe's and Whole Foods are not interchangeable despite both posting visit growth near 10% in 2025. The draw signal is similar, but lease form, term, renewal options, and obligor differ by lease, so read each lease abstract rather than the banner. Whole Foods, owned by Amazon, may carry a parent guarantee in some leases and not in others.

Second, Kroger and Albertsons remain separate public companies. Kroger's FY2025 10-K lists Albertsons among its peer companies and refers to litigation with Albertsons, and states that Kroger is committed to maintaining its current investment grade debt rating. Albertsons' FY2025 10-K lists Safeway among its 22 banners. Underwrite each as its own obligor, and confirm current ratings from the agencies rather than assuming either company's credit applies to the other's banners.

How to Model It

Grocery-anchored center underwriting decomposes into five computational pieces that belong in distinct tabs of a pro forma. The temptation is to roll the center up at the blended ABR line; the discipline is to underwrite anchor, percentage rent, inline rollover, recoveries, and exit cap separately and only then aggregate.

Tab 1: Anchor lease and percentage-rent schedule. Capture anchor name, exact legal obligor, primary term remaining, extension option count, fixed-bump or CPI escalation schedule, percentage- rent rate, and the natural breakpoint sales threshold. Build a sales-projection input from reported store sales where the lease provides them, and a percentage-rent line that flows to NOI only when sales cross the breakpoint. The common modeling errors are omitting a clause that is in the lease and assuming one that is not; in the worked example the clause is worth about 38 bps of value only if the store outperforms its breakpoint.

Tab 2: Inline rent roll and rollover schedule. List every inline tenant with current ABR PSF, lease expiration, option periods, renewal-spread assumption, and downtime / TI / LC assumption at rollover. Build the rollover schedule at the suite level, because annual cash flow needs the timing of each lease expiration. Mark roll-up rent against current market rather than contractual options. PECO's 21.2% comparable renewal spread and 36.2% comparable new-lease spread (37.9% for inline new leases) in Q1 2026 are public benchmarks for what an anchored inline roll-up can look like, but suite-level discipline (anchor co-tenancy clauses, exclusive-use covenants, radius restrictions) requires reading each lease.

Tab 3: Recoveries and CAM reconciliation. Grocery-anchored centers run on NNN leases with expense pass-throughs (CAM, taxes, insurance), but anchor leases may cap CAM contributions, exclude certain categories (anchor-area-only roof / parking), and impose pro-rata-share calculations that differ from the inline pro-rata. The recoveries model needs an anchor-specific column and an inline-pool column; blending them mis-states the recoverable expense base and flows that error to NOI.

Tab 4: Co-tenancy and exclusive-use schedule. Inline leases may contain co-tenancy clauses tied to the grocery anchor: if the anchor goes dark or center occupancy drops below a threshold set in the lease, inline tenants get rent abatement, cure rights, or termination options. Carry a "co-tenancy at-risk" line that quantifies the rent at risk if the anchor exits or occupancy falls. Combined with the lease's exclusive-use provisions (the anchor's right to prevent competing-use inline tenancies), this is the operational risk layer the cap rate prices.

Tab 5: Exit cap and reversion. Anchor-tier cap rate at exit drives the residual value inside a 5 to 10 year hold. This article's illustrative assumption is an exit 25 to 50 bps above the going-in cap for forward uncertainty, with the anchor tier setting the absolute level. A center underwritten at 5.8% going-in exits at 6.05% to 6.30%; a center at 7.1% going-in exits at 7.35% to 7.60%. Don't blend; price the tier-specific forward cap.

Build It in Apers

Common Mistakes in Grocery-Anchored Underwriting

• Treating anchor rent as the center's economic engine. In the worked example the anchor occupies 60% of GLA but produces 38% of ABR, and PECO's anchor spaces average $10.74 PSF of ABR against $27.34 for inline space. The center's NOI lives in the inline rent roll; anchor rent is the traffic subsidy that underwrites the inline premium. Underwriting that treats anchor rent as the cash-flow line misses what the anchor does to the cap rate: in the worked example, the same ABR is worth $22.5 million at 5.8% and $18.38 million at 7.1%, a $4.12 million (18%) swing.

• Modeling percentage rent by rule of thumb. Percentage rent is a lease-by-lease fact. In the worked example a $58 million outperformer adds $85,000, about 38 bps of value, and a store below the $49.5 million breakpoint adds nothing. Model the clause from the lease and reported sales; do not add a blanket yield uplift, and do not omit a clause that is actually in the lease.

• Blending the anchor tier. A "grocery-anchored center" is not a single product. JLL's 2022 tracker had high-priced grocery centers near 5.8% and discount and mid-tier centers near 7.1%, a 130 bps wedge, around a 6.7% national average at the close of 2025. The wedge is priced credit, draw, and forward growth signal. Comping a top-banner transaction against a regional-value print misreads the market by roughly 130 bps on the 2021 split.

• Missing the co-tenancy at-risk exposure. Inline leases may carry anchor-tied co-tenancy clauses, with rent abatement or termination rights if the anchor goes dark or occupancy drops below a threshold. The model should carry a quantified "co-tenancy at risk" line; sponsor-tier models often skip it and find out at workout. Read every inline lease for the co-tenancy trigger.

• Mis-pricing the recoveries pool. Anchor leases may cap CAM contributions or exclude certain expense categories. The inline pool absorbs the uncapped balance through pro-rata-share recovery math that is not symmetric to the anchor's. Blending recoveries across anchor and inline mis-states recoverable opex, and that error flows directly to NOI and value.

• Ignoring lease-form asymmetry in the NOI growth case. In the worked example the anchor is locked into a long term with fixed bumps while the inline rolls every 5 to 7 years to market. The NOI growth engine is the inline lease roll, not the anchor escalation. An underwriting that grows anchor rent at CPI and flat-lines the inline gives up the renewal and new-lease spreads that PECO reported at 21.2% and 36.2% in Q1 2026.

• Treating the banner as a proxy for lease term. Primary term remaining and renewal options vary lease by lease, even within one banner. A 10-year-remaining lease and a 20-year-remaining lease with the same banner price differently. Read the primary term remaining and the obligor, not just the banner.

FAQ

Related Articles

• Retail Underwriting: Anchor Economics and Co-Tenancy Provisions: the deeper companion on anchor economics in any shopping-center format: co-tenancy clauses, exclusive-use covenants, REA mechanics, and the institutional lease-abstract workflow.
• Pad Sites and Outparcels: Ground Lease Economics, QSR Credit, and the 2026 Cap Rate Stack: the outparcel monetization wedge inside a grocery-anchored acquisition; pad-site QSR ground leases at 4.45% to 6.85% against the grocery-anchored cap rate.
• Dark Stores and Big-Box Vacancy: Retenanting Economics: the value-add scenario for anchored centers where the anchor goes dark; the retenanting cascade and the cap-rate haircut on the vacant-anchor period.
• Net Lease Single-Tenant Underwriting: Credit Spreads and Cap Rate Decomposition: the deeper net-lease companion on STNL credit underwriting; useful for thinking about anchor credit as a security.
• Cap Rate Calculator and Formula: the underlying valuation primitive driving every grocery-anchored pricing decision.

Sources

• JLL, "Grocery Tracker 2026" (February 26, 2026)
• CBRE, "Grocers Adding More Stores to Meet Rising Consumer Demand" (2026)
• ICSC, "11 Retail Real Estate Predictions for 2026"
• Phillips Edison & Company, First Quarter 2026 Results press release (Form 8-K, Exhibit 99.1, April 23, 2026)
• Phillips Edison & Company, First Quarter 2026 Supplemental Information (Form 8-K, Exhibit 99.2)
• Phillips Edison & Company, Form 10-K for the fiscal year ended December 31, 2025
• The Kroger Co., Form 10-K for the fiscal year ended January 31, 2026
• Albertsons Companies, Inc., Form 10-K for the fiscal year ended February 28, 2026
• First National Realty Partners, "Grocery Anchored Retail Cap Rates" (quoting JLL's 2022 Grocery Tracker)
• Board of Governors of the Federal Reserve System, Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity (H.15), via FRED (DGS10)