Monday, November 2, 2009

Retail Cap Rates Surge in the Third Quarter

Retail Traffic reports that retail cap rates surged during the third quarter:

“Average retail cap rates increased 59 basis points in the third quarter of 2009 to 8.71 percent, based on CBRE’s Valuation & Advisory Services (VAS) database. The 59 basis point gain is the largest quarterly increase the company has ever measured, edging out the 55 basis point jump recorded between the first and second quarters. Retail cap rates are now up more than 150 basis points from where they were in the second half of 2007.”

This information has some interesting implications. Cap rates have an inverse relation with prices, so we can alternatively read this article as saying that prices have dropped in the third quarter.

Lower prices could indicate that commercial real estate, retail in particular, could now be about to experience that long awaited and much dreaded crash it was predicted to have. If the trend continues at this pace, the retail sector could be in a lot of trouble very quickly. Alternatively, this could signal the opportunity many investors have been waiting for. Numbers such as these could, ironically, spur investment in certain locations as the perception spreads that the bottom is being hit. How this trend is affected by the coming holidays is going to be an interesting thing to watch.

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