Investment sales volume of significant retail properties totaled $5.8 billion in the first quarter of 2011, up an astounding 53% from the same period in 2010. It is important to also note that the number of properties traded increased at a slower pace – by 25% – which means that properties are trading at comparatively higher prices.
Per-square-foot pricing, at $167, is at its highest level in two years and 31% higher than the trough in second quarter 2010. Cap rates are at their lowest level since 1980 ending the quarter at 7.6%.
According to Kris Cooper, managing director for Chicago-based Jones Lang LaSalle, most of this gain is attributable to the exceptional performance of strip centers, where sales doubled in volume during the quarter. Malls and other subtypes grew a comparatively 18% year over year. The market is attracted to grocery-anchored centers given their strong performance and resiliency.
New additions to the distressed market are slowing, with just under $2 billion in properties added in the last quarter, bringing total outstanding distress levels to $25.6 billion. Distressed asset sales rose from 10% of all retail sales in 2010 to 10% in first quarter 2011.
“It is interesting to note that as a result of improving investment conditions, many lenders are now choosing to liquidate loans rather than execute loan modifications or extensions,” said Cooper. “The proportion of retail workouts resulting in liquidations has risen to 30% in the first quarter, up from 26% from last quarter.”
Not all regions are experiencing the same levels of investment sales activity, Cooper said. The West region once again led retail property sales in the first quarter, with just under $2 billion. The Southeast was second with $1.03 billion in transactions, followed by the Northeast ($0.94b), Mid-Atlantic ($0.72b), Southwest ($0.58b), and Midwest ($0.52b).