Until recently, street retail throughout the country had fallen out of favor and into disrepair. Millennials and empty nesters are moving back to the cities, and investors are once again increasing their portfolio allocation in the street retail category.
“We’ve been in street retail for a long time, but it’s a greater focus for us now,” says Christopher Conlon of Acadia Realty Trust. “Previously, street retail made up a much smaller percentage of our portfolio, but we chose to make it a big part of our growth plan coming out of the recession.”
Cities such as New York and Chicago have always been known for being a retail destination. However, more and more investors are broadening their footprint by investing in retail located in smaller cities such as Charlotte and Savannah.
Based on data from CoStar, the top eight markets for retail investments include:
Miami – Last year, the volume of retail investment sales in Miami totaled almost $1.59 billion, reflecting an increase of 74 percent from the year before. Sales of strip centers in the city closed at an average price of $228 per sq. ft. and an average cap rate of 6.7 percent, compared to the U.S. average of $155 per sq. ft. and 7.3 percent.
Dallas – The area currently has 3.65 million sq. ft. of retail projects in the works, but 92.1 percent of that space has been pre-leased. At year-end, the market had a vacancy rate of 6.7 percent, with average quoted rents of $14.11 per sq. ft. In 2014, investors paid an average price of $166 per sq. ft. and an average cap rate of 7.7 percent for strip centers in Dallas.
Houston – The city ended 2014 with a vacancy rate more than 100 basis points below Dallas’(5.6 percent) and average quoted rents of $15.17 per sq. ft. There are approximately 2.35 million sq. ft. of new retail going up in Houston, 87 percent of it pre-leased. Retail investment sales in the city last year totaled roughly $1.36 billion, a drop of 14 percent from 2013.
Las Vegas – The vacancy rate in the city is still relatively high, at 9.3 percent, but rents are healthy at $15.59 per sq. ft. Strip centers in Sin City sell at an average of $150 per sq. ft. Last year, investors weren’t too eager to bet on Las Vegas—the volume of retail investment sales in the market went down 21 percent, to $1.07 billion.
Atlanta – Last year, Forbes ranked Atlanta as the 12th fastest-growing city in the nation, with population growth of 1.27 percent and job growth of 7.07 percent in 2013. The city currently has only 385,058 sq. ft. of retail under construction, with pre-leasing commitments for at least 85.9 percent of the space. Atlanta’s vacancy rate averages 8.4 percent, while its quoted rents are at $12.47 per sq. ft. Atlanta is also attracting plenty of interest—last year, total investment sales volume in its retail real estate went up 27 percent to $1.9 billion.
Charlotte – Forbes also ranked Charlotte as one of the fastest-growing cities, with population growth of 2.3 percent in 2013. At year-end, Charlotte’s retail vacancy rate stood at 6.5 percent and its quoted rents averaged $13.20 per sq. ft. Developers are currently working on 578,801 sq. ft. of new retail construction in the city, 87.8 percent of which has been pre-leased. Retail investment in the city is going up—last year, sales volume shot up 97 percent, to a little more than $1 billion. The average price of retail in the city is $138 per sq. ft., which is a bargain.
Nashville – At year-end, the retail vacancy rate in the city averaged 6.4 percent, with quoted rents of $14.38 per sq. ft. In spite of being one of the fastest-growing cities in the nation, Nashville has only 354,106 sq. ft. of new retail in the pipeline, 87.9 percent of it pre-leased. However, it’s still affordable, with prices for strip centers averaging $155 per sq.ft.
Raleigh/Durham – In the fourth quarter of 2014, these cities posted a combined vacancy rate of 5.1 percent and quoted rents of $14.58 per sq. ft. There is currently 766,962 sq. ft. of new retail construction in the works for the area, 87.3 percent of which has been pre-leased. In 2014, investment sales volume in the Raleigh/Durham market was moderate, at $626 million, but the figure represented a year-over-year increase of 137 percent.
As you can see, there are plenty of reasons to invest in retail properties or refinance existing loans. In fact, last week the team at Commercial Defeasance helped facilitate the defeasance of a $5 million loan for a retail property in Wilmington, N.C. The owner wanted to take advantage of the low interest rates and refinance their loan. If you are interested in doing the same, give us a call and we’ll begin exploring different interest rate scenarios for you.