More than half of transaction survey respondents reported lower retail cap rates.
Members of the CCIM Institute, Commercial Real Estate’s Global Standard for Professional Achievement, indicated growing interest in retail investment properties, according to the organization’s 2Q15 Quarterly Market Trends report. Approximately 55 percent of CCIM members who participated in a May 2015 market intelligence survey reported lower capitalization rates on retail transactions than during the same period last year. The average national retail cap rate as reported by CCIM member respondents was 7.8 percent, substantially lower than the average national cap rate for all CCIM transactions of 8.5 percent. Retail transactions increased for 55 percent of CCIMs surveyed, with a 94 percent closing rate.
The lower retail cap rates reflect the tight market activity in the single-tenant net lease retail sector, according to CCIMs active in the net lease market. “It’s very hectic, with cap rates continuing to compress in the lower credit tranches,” said Camille Renshaw, CCIM, senior director and lead broker for the New York City office of Stan Johnson Co. “Many buyers are finally able to sell lower credit deals or weaker assets they held through the recession; they are bringing their 1031 exchange dollars to our sector, creating intense demand for product.”
Sales and Leases Closed Across all Sectors
CCIM member respondents reported higher sales transaction activity across all major property sectors, with 98 percent closing industrial property deals, followed 95 percent closing office deals, and 94 percent for retail and multifamily closings. Ninety-one percent of CCIM member respondents closed office leases, followed by 90 percent closing retail leases; 86 percent, industrial; and 59 percent, multifamily.
Almost three-quarters of CCIM members reported higher retail rents year over year, indicating retail’s tight leasing conditions. “Tenants have taken their foot off the brake and are very aggressively pursuing deals again,” says Brian Sorrentino, CCIM, director of ROI Commercial Real Estate in Las Vegas. “There has been very little new space delivered to the market since 2009, and everyone is fighting for the same space.”
Multifamily Remains Top Investment Sector
Despite reporting a lower percentage of multifamily deal closings compared with other property sectors, CCIM members still gave multifamily the highest investment conditions rating among the five major property types. On a scale of 1 to 5 (with 1 being lowest and 5 being highest), multifamily investments ranked 4.10, followed by industrial (3.6), retail (3.5), hospitality (3.4) and office (3.0) respectively.
Capital Outlook Remains Positive
Expectations of interest rate increases abated, with 47 percent of CCIM members expecting Treasury yields to remain the same. In addition, 36 percent of CCIM members reported meaningful improvement in credit availability compared with last year. CCIM members indicated credit becoming more readily accessible over time for the four main property sectors.