Retail Investment Gains Momentum in Unexpected Places

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In the first quarter of 2017, U.S. retail transaction volumes reached more than $16 billion, which is a slight 4.9 percent decline over last year according to preliminary figures released by JLL. But despite the dip, JLL expects a strong pipeline of transactions to grow and continue to stabilize this year

“Going into this year, we anticipated being extremely busy as our investor clients expressed a desire to sell a significant amount of product. But, in January we saw investors cut back on their expectations and become more selective about pruning their portfolios. Thus the slowdown of overall retail trades,” said Margaret Caldwell, Managing Director at JLL. “Since March, we’ve seen more retail assets hit the market and willing buyers if the location and price are right.”

The Retail Investment Basics:

  • Who’s selling: REITs continue to sell non-strategic assets, increasing disposition volume by 5.4 percent quarter-over-quarter. Some institutional and private owners are selling primarily assets in secondary and tertiary markets.
  • Who’s buying: Most active buyers are private investors looking for opportunistic and value-add assets. We are also seeing more developers purchasing existing assets where there are opportunities to reposition the property and achieve higher yields in comparison to new developments.
  • What’s trading: Single asset transactions under $100 million reached $2.8 billion year-to-date, increasing overall this cycle from last as investors move away from riskier portfolio transactions. With buyers drawn to low-risk investments at the start of 2017, grocery-anchored shopping center transaction volume swelled 110 percent year-over-year, with $1.6 billion of product trading due to its stability and liquidity.
  • Where: Transaction volumes into tertiary markets rose 54.2 percent over last year, as buyers are having a hard time finding quality product in primary and secondary markets due to cap rate compression. Primary market cap rates compressed 20 basis points to a low 4.3 percent, and 30 basis points to 4.6 percent in secondary markets.  Primary and secondary transaction volumes still make-up 64 percent of total investment.

“Overall, we’ll continue to see owners of well-performing properties keeping a tight hold on their assets and buyers becoming more stringent with their requirements,” concluded Naveen Jaggi, President of Retail Brokerage and Capital Markets, JLL. “I expect that we’ll see more trades at the tail end of this year, especially for hidden gems in tertiary markets, such as stable grocery-anchored centers, well-positioned power centers or even malls with little competition.”

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