The State of the Retail Market is strong! Interest rates remain low from 2014 and into 2015. A strengthening US economy, increased consumer spending in retail, falling vacancy and rising rental rates, as well as positive net absorption in major markets all indicate a good year for retail.
Due to the low cost of debt, and demand outpacing supply, cap rates have reached all-time lows. The average cap rate across all retail acquisitions has dropped 30BPs from 7.00% to 6.70% nationally. In addition, the 10 year treasury decreased approximately 27% from 3.00 to 2.20 in 2014. That’s a 400 spread to a 450 spread. This is consistent with the long term cap rate average of 380-470BPs above the 10 year treasury.
Average price-per-square-foot for strip centers is up 9.50% and the volume of square feet that traded is up over 24% from 2013. Single-tenant activity increased a whopping 41% from the start of 2014. Average Cap Rate in the 6 major metros has fallen another 40bps to 4.40%. Cap rates across all retail acquisitions fell 30bps in 2014 to 6.70%.
Several other conditions also indicate an even stronger 2015 for retail investments than we saw in 2014. General advice is to make hay while the sun is shining and take advantage of the current growth period. Evaluate your disposition for opportunities to increase your return. Maybe that’s making improvements on your properties, refinancing, selling and buying upward or moving your investments into stronger metro areas. The worst thing to do is nothing. NOW is the time to make a plan and act on it!
Get a full overview of the State of the Retail Market including:
• Leasing activity, vacancy and market rents
• Year-over-year tenant sales growth and leveraging sales reporting
• Capital market review: debt and investment sales
Watch the OnDemand Webinar: 2015 State of the Retail Market.
See the full bio of Kyle B. Matthews, CCIM.