Investment sales of retail properties showed remarkable momentum in the first half of the year, with volume rising 57 percent compared to the first half of 2013, to $36.9 billion, according to Real Capital Analytics (RCA), a New York City–based research firm. The figure represents the highest gain in volume among all the commercial property types, RCA researchers report.
The CoStar Group, a Washington, D.C. –based research firm, puts the mid-year figure even higher, at approximately $37.4 billion. The slight discrepancy may be due to the fact that CoStar tracks sales of smaller properties.
Importantly, the spike in volume was recorded as portfolio sales slowed down, and translates into rising prices on individual retail assets.
Overall retail sales volume in the second quarter totaled $14.4 billion, RCA reports, an increase of about 1 percent compared to last year.
Sales of single retail assets, however, rose 16 percent, to approximately $12.3 billion. It was also an uptick from $11.3 billion in the first quarter. During the same period, portfolio sales totaled roughly $2 billion, down from $2.8 billion in the first quarter and $3.6 billion a year ago.
Top dollar
At the same time, average price per sq. ft. for all retail properties climbed to $213, from $205 per sq. ft. in the first quarter and $179 per sq. ft. a year ago.
The CoStar Group estimates the current average price tag on retail transactions at $160.44 per sq. ft., up from $144.77 per sq. ft. a year ago.
Cap rates have registered modest declines as well. RCA reports that the average cap rate on retail assets in the second quarter stood at 6.8 percent, down 20 basis points compared to a year-ago period (and flat with the first quarter of 2014).
CoStar puts the average retail cap rate at 7.5 percent, down 40 basis points from the second quarter of 2013.
In addition, average cap rates on retail transactions in primary and secondary markets are now almost at the same level as at the peak of the previous cycle, in 2007. The cap rates recorded in the six major metros, including Manhattan in New York City, Los Angeles, Chicago and Dallas, currently average 6.0 percent—10 points lower than in the first three quarters of 2007.
Average cap rates on retail sales in secondary markets are at 7.0 percent, representing only a 30 basis points difference with where they were in the first quarter of 2007.
Cap rates on centers in tertiary markets are averaging at 7.3 percent, compared to the 6.8-6.9 percent recorded in 2007.
According to a July report from commercial real estate services firm JLL, prices on retail assets in secondary markets in the Midwest have shot up 20 percent year-over-year.
Contributing to the strong investment sales environment is the fact that many investors who purchased value-add assets after the recession have by now completed their re-leasing and redevelopment programs and can sell those assets at higher prices, JLL researchers note. In fact, improving property fundamentals and readily available debt have made this the best environment for retail asset dispositions since 2008, the JLL report proclaims.
