Fast-Growing Grocery Concepts Helping Fill D.C.'s Vacant Retail Space

As retail continues its shaky recovery from pandemic lows, grocers and other tenants are looking to capture the increased demand they are seeing from stay-at-home workers.

Grocery stores have pushed to expand faster than other retail sectors during the coronavirus pandemic in the D.C. market as they have experienced stronger-than-expected sales, a new report from Dochter & Alexander Retail Advisors found. 

There have been 26 total grocery store tenants on the market for space since April 2020, the report found, comprising 7% of all tenants seeking new locations. That percentage rose from 2.5% prior to the pandemic, while sectors like fashion and fitness saw their share of demand fall.

"What you’re seeing is with the pandemic and people being at home, dollars have been spent on groceries, and that’s been a major driver," David Dochter, principal at Dochter & Alexander, told Bisnow. "That’s been one of the categories that’s been expanding from pre-pandemic."

The list of grocers interested in expanding into D.C. includes those that already have a foothold in the market, like Lidl, which has a location in Takoma Park. But it also includes newcomers Sprouts and Fresh Market, in addition to new grocery-delivery hybrids like Foxtrot. 

The researchers said leasing for grocery retail spaces was especially strong in neighborhoods with large residential populations like the 14th Street corridor and Capitol Riverfront.

The two neighborhoods illustrate a divide this year between new and old grocery concepts. In Capitol Riverfront, the Harris Teeter at 401 M St. SE announced it would temporarily shorten its hours due to hiring and scheduling challenges. Earlier this month, another Harris Teeter in the nearby Hill East neighborhood also announced it was closing.

The area is still served by a revamped Safeway that opened less than a half-mile away last year. Dochter said the emptying space would likely find another grocery tenant. He said the planned closure may have been influenced by a combination of factors like occupancy costs, access, parking and convenience.

"There’s going to be unique situations," Dochter said. "The real estate is pretty nuanced and it’s very localized, [but] as a broad statement, grocery is very attractive."

Meanwhile, 14th Street is seeing strong interest from newer grocery operators. Already the home of a Trader Joe's and a Whole Foods, the neighborhood also welcomed an Amazon Fresh store at the Liz mixed-use development this summer.

The concept's first location in D.C. proper, Fresh operates with Amazon's "Just Walk Out" technology in addition to traditional forms of payment. It has also opened locations in Chevy Chase and Franconia, plus it has at least four other locations planned for Northern Virginia, and it is eyeing a new location in Downtown D.C., the Washington Business Journal reported. 

Foxtrot, the high-end, locavore corner store concept, also leased a 2,500 SF space at 1341 14th St. NW this year, the former home of Barrel House Liquors. The site was vacant for several years, and it had previously been floated for residential redevelopment, according to Dochter & Alexander.

Foxtrot is one of several quick-delivering grocery concepts active in the D.C. market. The Chicago-based chain offers online ordering and delivery to its customers within 60 minutes of purchase. It operates locations in Georgetown and Mount Vernon Triangle already, and plans for additional expansion in the region.

Other brands, like Jokr and Gopuff, have also been knocking on the door of empty retail space in D.C. Typically dark-store concepts, the grocery-slash-delivery operators have rocketed onto the scene in cities like New York and Boston and look to repeat their rapid lease-up strategy in D.C.

"They’re very active and they are trying to position themselves in all of the neighborhoods around the region," Dochter said. "We would anticipate that will continue."

Those well-funded startups may have an easier time finding space in neighborhoods with an oversupply of office space and little residential.

Vacancy rates around the region vary drastically between neighborhoods, according to the Dochter & Alexander report. But the Chevy Chase area, which straddles the D.C.-Maryland border, stands out among all neighborhoods studied in the report, with a 39.62% vacancy rate. That market appears to be correcting, with two residential conversions planned in the neighborhood that developers hope will bring new foot traffic to the region.

Office-heavy neighborhoods closer to downtown D.C. also struggled. The central business district saw its vacancy rate rise from 6.61% in winter 2020 to 18.96% this fall. The East End neighborhood also saw its vacancy rate double from 10.3% to 20.8% over the same period.

The report found vacancy rates increased this year in nearly every neighborhood, but the researchers cautioned that was sometimes due in part to new construction that hadn't fully leased up yet in strong markets.

Emily Anderer, Dochter & Alexander's director of research and market strategy, said there were hundreds of new tenants looking to lease space in D.C., and she expected demand to remain strong in the near future.

"People wouldn’t keep breaking ground on these new projects if they weren’t confident that they would lease up," Anderer said. "Despite the challenges of Covid, D.C. remains a very attractive retail landscape."