New York City Retail real estate is poised for a modest increase in demand with investment sales volume expected to gradually rise next year, according to Jones Lang LaSalle’s 2010 Retail Outlook.
Investors with cash in their pockets and the bottom of the market in their sights will capitalize on attractive investment opportunities with an emphasis on Class A trophy shopping centers, the report said.
From the heady days of the market peak in 2007, U.S. retail property transaction volume fell 66% from total year-end volumes of $56.3 billion in 2007, to a mere $19.2 billion for total year 2008.
For the first three quarters of 2009, transaction volume has dropped even more precipitously, down an additional 71% from 2008, to a record-low $5.6 billion.
Retail property cap rates have held between the 9% to 11% range for less desirable retail assets, but are actually dropping into the mid 7% to 8% range for a select group of the strongest, most risk-adverse retail assets. The number of distressed retail real estate assets is expected to continue to increase as the discrepancy between values and loan amounts continues.
“The continued lack of liquidity in the debt markets has contributed to pent-up demand, and we expect opportunistic investors to cautiously re-enter the market in early 2010,” said Kris Cooper, managing director of Jones Lang LaSalle’s retail investment sales practice. “We’re just now seeing lenders’ willingness to lend to strong sponsors open up, but those lending offers are at far more conservative levels than we’ve seen in the past.”
The persistent gap between seller and buyer expectations is also expected to contract in the coming year, though many highly leveraged institutional-type investors will continue to delay sales unless they face debt maturities or require additional capital.
In addition, liquidity in the debt markets will remain an issue into 2010 as the bar has been permanently raised for many borrowers, the report said.
In the last three months, Jones Lang LaSalle’s retail investment sales team has completed nearly $50 million in retail asset sales.