The recent rise in interest rates for US retail properties has not phased investors, who saw $3.5 billion in finalized sales in July 2013, a 58% increase from July 2012. (Data from global commercial real estate research firm, Real Capital Analytics (RCA).)
One major indicator that the retail sector is not going anywhere but up is the $1.64 billion sale made on September 13th by Australian REIT The Westfield Group, who sold a 90% stake to seven non-core regional malls to the Starwood Group.
“Obviously they think these assets are attractively priced,” says RCA Managing Director Dan Fasulo. “The retail sector is witnessing an influx of capital and there has been downward pressure on cap rates, even in the context of higher interest rates. Part of it is due to the fact that we are closing the spread between retail and other sectors, like apartment and office. I don’t foresee cap rates rising any time soon, until retail starts to trade at parity with some other sectors.”
RCA data shows that the average cap rate on retail sales in July 2013 was at 7.1%. During the first half of 2013, retail prices rose by 8.9%, with the most activity in previously distressed markets such as Las Vegas, Atlanta and Tampa.
(To learn more about distressed markets, try RCA’s Troubled Asset Search.)