(To read more on the industrial market, click here.)
DOVER, DE-Even in the most favorable of environments, cap rates for a class A retail shopping center in the Dover-Philadelphia region tend to hover around 6.25% to 6.5%. Now that interest rate hikes are starting to have an effect, the expectation is they will rise between 25 to 50 basis points, says Jordan Muchnick, with Marcus & Millichap's National Retail Group in Philadelphia.
Two weeks ago, though, Muchnick, together with Brad Nathanson, arranged the $6.3-million sale of Dover Mart, a 45,692-sf shopping class B retail complex anchored by Dollar General, Sleepy's and Rent-A-Center, at a cap rate of 5.8%. That's very aggressive even without rising interest rates. The buyer was Diamond State Management, a Wilmington-based company. The seller was a local business person, Ahmad Amer. Selling brokers were Dean Zang & Mark Taylor, also of Marcus & Millichap's Philadelphia office.
However this deal is more of an anomaly than any indication that cap rates will remain at their record low levels. "We are already starting to see prices drop and cap rates rise on single tenant properties due to interest rates," Muchnick tells GlobeSt.com. "We can expect to see cap rates rise for both single and multi tenant over the next year."
The sale of Dover Mart, located at 280 South Dupont Hwy., was fortuitously situated in that a free standing Wawa next door was seeking to expand. Besides the retail component of the shopping center, there was also a 7,720-sf office building previously occupied by the State of Delaware Elections Department, but now standing vacant. The developer was willing to put a premium on the price, even though the only income from the development was coming from the retail portion of the center because he knew he could sell off some of the land to Wawa or redevelop it later, Muchnick explains. In general, Muchnick says, class A and class B retail in Dover are trading at 7% to 8% cap rates.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
