Grocery-Anchored Real Estate’s Rise: Why First Capital REIT is Leading the Charge

The real estate sector has long been a barometer of economic health, but not all sub-sectors are created equal. Grocery-anchored retail, once considered a conservative play, is now at the center of a compelling investment narrative. National Bank’s recent analysis underscores why this niche is thriving, while First Capital Real Estate Investment Trust (FCR.TO) is proving through its Q1 2025 results that it’s a leader in capitalizing on the trend.

The Case for Grocery-Anchored Real Estate: National Bank’s Data-Driven Optimism

National Bank’s analysis paints a clear picture of why investors are flocking to grocery-anchored properties:

1. Vacancy Rates at Historic Lows: At 3.5% as of Q4 2024, vacancy rates for grocery-anchored retail are near record lows, down 100 basis points from the pandemic peak. This reflects minimal new supply (under 100,000 sq ft annually since 2023) and persistent demand from grocers and retailers.
2. Rent Growth Outperforming Other Retail: Grocery-anchored rents rose 3.1% year-over-year in Q4 2024, outpacing neighborhood and power centers (both at 2.9%). Scarcity of prime space is pushing landlords to capitalize.
3. Investment Surge Amid Volatility: Despite macroeconomic uncertainty, 2024 investment in the sector hit $7.0 billion—up 1.4% from 2023. The average price per square foot hit a record $209, driven by investor confidence in this “low-risk, high-rent-growth” asset class.

The supply-demand imbalance isn’t fleeting. Grocers like Aldi (planning 225 new U.S. stores in 2025) and regional giants like Publix and H-E-B are fueling demand, while construction costs and developer hesitancy limit new supply. National Bank projects vacancy rates will remain near historic lows through 2025, sustaining upward rent pressure.

First Capital REIT: A Microcosm of Sector Strength

First Capital’s Q1 results exemplify the macro trends National Bank highlights. Key takeaways:

• Occupancy at 96.9%: A record high and a 0.7% jump from 2024, showcasing the resilience of its portfolio.
• Lease Renewal Spreads: First-year rents rose 13.6% on average, with 18.7% gains over the lease term—a direct reflection of tenant competition for space.
• Same-Property NOI Growth: Up 5.3% excluding one-time items, driven by higher base rents.

The Trust’s capital strategy is equally telling:
- Focus on Core Assets: Acquisitions in Q1 totaled $22 million, including Toronto’s 1549 Avenue Road—a mixed-use project with 47,000 sq ft of retail.
- Aggressive Dispositions: $72 million in sales of lower-yielding assets, with plans to divest $750 million over three years to optimize the portfolio.

Financial discipline is evident: Net debt to EBITDA improved to 8.9x, nearing its target of the “low-8x range” by 2026. CEO Adam Paul’s emphasis on high-quality, grocery-anchored properties aligns with National Bank’s thesis that this sector is a “stable, inflation-resistant asset class.”

Why Grocers Are Driving Demand—and Why It’s Here to Stay

Grocers aren’t just tenants; they’re real estate players in their own right. Aldi’s aggressive expansion (targeting 800 new stores by 2028 via conversions and organic growth) and Publix’s regional dominance exemplify this. These grocers are securing prime locations to fuel growth, creating a virtuous cycle for landlords.

National Bank also notes indirect drivers:
- E-commerce Synergy: Grocery e-commerce hit $204 billion in 2024, up 10.7% YoY. While online shopping reduces in-store dwell time, it creates demand for logistics infrastructure adjacent to retail centers.
- SNAP Integration: Over 41.7 million SNAP users now use third-party platforms like Instacart, broadening the utility of anchored retail spaces.

Risks on the Horizon—but Not Dealbreakers

No investment is without risk. National Bank flags two key concerns:
1. Supply Chain Disruptions: U.S.-Canada trade tensions could impact grocers reliant on cross-border supply chains.
2. Consumer Spending Moderation: Grocery costs have risen 26.8% since 2020, though discounters like Aldi and Grocery Outlet are mitigating this with low prices.

Yet these risks are sector-wide, and grocery-anchored real estate’s structural advantages—predictable cash flows, low vacancy, and tenant stability—outweigh them.

Conclusion: A Sector Built for the Long Game

First Capital’s results and National Bank’s analysis confirm that grocery-anchored real estate is a standout investment in 2025. With vacancy rates near 3.5%, rent growth outpacing other retail sectors, and grocers like Aldi fueling demand, the fundamentals are undeniable.

For investors, FCR.TO stands out as a pure-play bet on this trend. Its 96.9% occupancy, disciplined capital allocation, and focus on high-quality assets position it to deliver on its three-year plan: 3% annual FFO growth and a net debt/EBITDA ratio in the low-8x range.

While risks like trade disputes or inflationary pressures exist, the sector’s resilience—backed by $7.0 billion in annual investment and a supply-demand imbalance—is a powerful tailwind. In an uncertain market, grocery-anchored real estate isn’t just “in vogue”—it’s a safe bet for steady returns.