Net Lease Retail Cap Rate Compression for First Quarter 2014

Posted May 5, 2014

In 1031, California, Columbus, Commercial, Los Angeles, net lease, nnn, Retail, Santa Monica

Cap rates fell 40 basis points and net lease retail product quality also falls in the first quarter of 2014.

We’re thinking retail right about now as the national ICSC Global Retail Real Estate Convention is just around the corner running through May 18-20 and over 30,000 net lease retail professionals converge on Las Vegas. This is the biggest event of the year for the retail industry and while the mood at the 2013 could be described as optimistic, 2014 is expected to be better yet due to increasing retail sales and lower cap rates.

Consumer retail sales are the most important indicator of the health of the retail segment of the overall economy and drives nearly every retail commercial real estate decision in the sector. According to Abigail Rosenbaum, a senior economist at CBRE Econometric Advisors, Total sales using total annualized percentage change was up 14.5 percent in March to $434 billion. This is a 3.8 percent increase year over year. This sounds great, but sales are only now approaching historical averages.

Overall, the figures indicate that consumers are shopping with increased confidence and higher retail consumer sales will lead to higher rents from net leased retail tenants to landlords.

The national retail availability rate is now under 12% according to CBRE, the best since 2009 and 60 basis points lower than last year. Only the Chicago retail market has softened a bit with the availability rate rising to over 14 percent last quarter. Nationally, space availability is trending lower despite the trends toward online and smaller store formats.

A big problem for those of us in the retail commercial real estate brokerage industry is triple net retail product availability, especially for those of us who do a large volume of 1031s. A 1031 exchanger comes out of a relinquished property that they bought a few years ago at a 8 CAP and then are forced to go to a more expensive property with possibly a lower quality tenant at lower caps to maintain their NOI. There are plenty of buyers and debt is readily available, but there’s so little to buy.

I primarily work two markets: Central Ohio including the Columbus commercial real estate for sale and lease market and the Southern California including the Los Angeles triple net retail market and I’m certainly seeing the above in both of these markets. Further, I see the above situation for buyers in almost all of the American markets.

If 2014 proves to be a difficult year, it won’t be for lack of buyers or net leased retail tenants. If you have off market or pocket listings, I would be happy to hear from you

1031 Exchange, Net Lease, Net Leased Retail, NNN Property, Triple Net Retail

Commercial realtor

Commercial real estate with a focus on out-of-state investment property for my Southern California investors. My clients are Southern California local buyers looking for a return far better than what is available around here and that generally means out-of-state. We have expert property management, legal, and contracting services available.