Mid-America Investment Sales Group Reports First Quarter Activity, Shares Views on the Market
May 15, 2023
The Mid-America Investment Sales Group is pleased to report the following first quarter 2023 closing activity on behalf of our clients, which included the sale of eight shopping centers and six single-tenant NNN leased retail assets totaling $125 million in deal volume.
While this investment sale volume reflects the national investment sale transaction market being substantially lower than a year ago in Q1 2022, we continue to experience significant activity for any new retail offering we bring to market. In particular, private capital buyers of all sizes continue to provide demand across most retail product types – grocery-anchored, unanchored neighborhood shopping centers and junior box centers. However, the market is most liquid when focused on smaller deals in the sub-$30 million transaction size range, as the cap rates have to make sense in today’s higher interest rate paradigm.
Cap rates have increased throughout the Midwest as borrowing costs have nearly doubled in the last year, but vary by specific retail product type. We’ve seen cap rates for traditional regional and power centers expand by 150-200 basis points, grocery anchored centers to a lesser degree approximately 100-150 basis points higher, and unanchored neighborhood shopping centers at 75-125 basis points higher.
Single tenant assets have generally seen the most nominal adjustment, largely varying based on deal size and whether a lender is involved. Smaller transactions that can be acquired all cash have seen only minor increases if any, while larger single tenant assets have had cap rates increase by 50-150 basis points versus a year ago.
Shopping centers offered to the market that include any upside potential through current vacancy or future development are generating the widest pool of buyers, reflecting a retail landscape that is strong with occupancy rates at levels we haven’t seen since pre-2008 financial crisis, which is putting upward pressure on rental rates – despite the substantial increase of tenant build-out costs. Coupled with solid retailer sales volumes, this dynamic has helped continue to propel the retail investment sales market despite increased interest rates, banking system volatility, inflation concerns, and recessionary forces all putting pressure on equity and debt pricing.
Our team currently has 14 properties totaling $230 million in market value under contract and expected to close in summer 2023, and 33 properties totaling $460 million currently in the market or coming out shortly in concert with the ICSC Las Vegas convention. We expect transaction volumes to continue to build over the course of this year with a substantial increase in closed deals in the second half of 2023, as compared to the second half of 2022 and first half 2023.
Please reach out to the Investment Sales Group with any questions or for more detailed information.