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Grocer Sprouts Inks 337K SF Lease in Fullerton

Real Estate: 1st tenant for Goodman development

Organic grocer Sprouts Farmers Market Inc. is reported to have signed a lease totaling 337,000 square feet at a new industrial development in Fullerton, in a record deal for Orange County year-to-date.

The new deal places Sprouts (Nasdaq: SFM) as the first major tenant reported at the Goodman Logistics Center Fullerton, the former Kimberly-Clark Corp. manufacturing site that’s being redeveloped into a 1.5 million-square-foot logistics campus.

The project, just north of the Riverside (91) Freeway along Orangethorpe Avenue, is the largest new industrial project built in the county in several years and is expected to deliver next quarter.

The Fullerton deal would mark the largest industrial warehouse in Sprouts’ portfolio by a wide margin, according to regulatory filings. As of early January, the largest of its seven national distribution centers ran 135,000 square feet.

 

SoCal Move

Neither the grocer nor the building’s owner has yet to confirm the Fullerton lease, which was first disclosed in local brokerage report from Cushman & Wakefield.

Company officials alluded to a larger regional distribution center being in the works, in its last earnings call this May.

Sprouts plans “to move our Southern California distribution center into a larger facility in 2023 to support our ongoing growth in that region,” Chief Executive Jack Sinclair said in the May call. “We’ve already begun to work on this facility, which will include ripening rooms to present fresher product to our customers.”

In addition, the facility will be “LEED certified and planned to support electric charging for commercial trucks,” he told analysts.

Sprouts’ nearest distribution center currently is just outside Riverside, in the city of Colton, according to regulatory filings.

The company, valued around $3 billion, is set to announce its latest quarterly earnings on Aug. 3.

 

Record Size

By square footage, the lease tops one made last month from Rivian Automotive Inc. (Nasdaq: RIVN), which added a 219,827-square-foot facility near its Irvine headquarters.

Sprouts’ 337,000-square-foot deal is the largest reported new lease for Orange County since Anduril Industries’ blockbuster deal for its new Costa Mesa headquarters campus. It comes as grocery stores continue to outperform the rest of the retail market since the pandemic, as consumers focused on essential products when shopping in person and cooked more meals at home.

Shoppers stocking up on goods helped push U.S. grocery sales up 11% in 2020, more than three times the growth seen during the prior two years, according to the U.S. Census Bureau.

 

4-Building Project

Sprouts’ deal is for one of the four buildings at the 65-acre Goodman campus, which kicked off construction last year along the 91 freeway.

The Irvine-based developer, the North American division of Australian industrial giant Goodman Group, paid $202 million for the former Kimberly-Clark site in 2019.

Previously spanning 1.2 million square feet, the site was long home to the paper goods manufacturer before it announced plans in 2018 to shutter the tissue-making facility, which at its peak employed close to 300 people.

The Irving, Texas-based maker of Kleenex and other related products (NYSE: KMB) sold the property for about $155 per square foot.

The redevelopment is set to wrap by next quarter, brokerage materials indicate, with buildings ranging in size from 173,925 to 538,226 square feet.

Sprouts’ deal is for Building 1 at 1829 Orangethorpe, the third-largest building.

CBRE Group Inc. is handling leasing for the project.

About 2.7 million square feet of industrial product is expected to deliver next quarter, marking the largest amount of new industrial space brought to the market since 2001, according to a second quarter report by Cushman & Wakefield.

 

Sprouting Up

Phoenix-based Sprouts counts 129 grocery store locations in California with 18 in Orange County; its newest local outpost opened in Garden Grove at the end of last year.

Typical stores run around 29,000 square feet, and a new format it is rolling out run closer to 23,000 square feet; both are much smaller than traditional grocery stores.

The company has built a loyal following since its founding two decades ago, with an emphasis on natural products that resonated with consumers alongside growing demand for the health and wellness industry.

Its shares are up about 16% over the past month, and its stock has outperformed the natural foods products industry tracked by Zacks Investment Research, according to an April report.

Sprouts, Bristol Farms, Amazon Fresh and H Mart were among the most active big-box grocers looking for space in Orange County last year, according to retail data from the local office of CBRE.

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