Multi-tenant Retail Sales Jump 34% From Previous Quarter

Investment in retail properties nationwide rose in Q3 2023 to $11.86 billion, marking the first increase in deal volume since Q3 2022, according to a new report from Northmarq.

Though the upward movement was welcome after three quarters of steadily declining investment, it was still 31% below year-ago levels when sales hit $17.66 billion. It was, however, 34% higher than the $8.84 billion recorded in 2Q 2023 when volume fell below $10 billion for the first time since the Covid pandemic.

“Healthy demand from retail tenants and a thin development pipeline are helping to buoy market conditions. With continued consumer spending, many retail brands are actively expanding and vacancy rates are shrinking,” the report commented. “If activity levels hold steady, during the final three months of the year, the market would post an annual sales volume similar to 2019 [$48.97 billion].”

Transactions increased even though both the quarterly and annual cap rates rose to 7.05% — a 47 bps increase year-over-year, and the first time since Q1 2015 when cap rates have risen above 7%. During 3Q 2023, average retail cap rates rose 19 bps from 2Q 2023.

The Southeast boasted the highest investment sales volume in 3Q 2023 with $3.036 billion recorded. It was followed by the Northeast ($2.287 billion), the West ($2 billion), the Midwest ($1.8 billion), the Southwest ($1.65 billion) and the Mid-Atlantic ($1.01 billion).

The pattern shifted for the year to date. The Midwest triumphed with transactions worth $8.69 billion, followed by the Southeast ($7.44 billion), the Southwest ($5.11 billion), the West ($5.65 billion), the Northeast ($5.09 billion) and the Mid-Atlantic ($2.63 billion). Total sales for the year-to-date amounted to $34.63 billion, meaning there is a lot of room to catch up to 2022’s $74.41 billion total.

The outlook seems favorable. A number of junior and big-box anchor stores have announced planned expansions, as have grocery operators. “Owners of existing multi-tenant retail properties have the opportunity to attract many of these brands and enhance the value of these centers. Well-positioned properties – whether they are unanchored strip centers or open-air power centers with national anchor tenants – should remain attractive investments,” the report commented.

So far this year, domestic users have made up 2% of buyers. International buyers constituted 18% of the total, 6% were institutional buyers, 20% domestic REITs, and 53% domestic private buyers.

A lack of available new supply could prove a temporary hindrance for investors. However, well-performing second-generation assets and value-add opportunities are likely to do well if consumers keep spending and tenants keep growing, the report predicted.