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Part 3: CAP Rates & $/SF January 14, 2011

Posted by Sean Tufts in Research/Data, Retail News.
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Using the same set of criteria as described in yesterday’s post, the average CAP rate for multi-tenant non-distressed retail centers in the Seattle area continued to rise.  From 2006 to 2008, the average CAP rate hovered around 6.5%.  2009 saw a big jump as real estate and retailers got hit hard. The 2009 average was 7.65%. The average for 2010 continued northward to land at 8.2%. We believe this to be in line with historic averages and expect 2011 to have similar results. On a five million dollar asset, this increase in CAP rate from 6.5% to 8.2% results in a loss of over a million dollars of value.

The average CAP rate for single tenant sales also rose from 7.37% to 7.64%.

The average price per square foot continued to fall as well as very few high quality retail centers traded hands. Only one center sold with a price per square foot above $300. From the average high of $292/sf in 2008, the average has fallen all the way to $192/sf. This is only a 4% decrease from 2009 numbers. It is interesting to note that the average price per square foot for the distressed retail centers taken back by lenders was only $5/sf lower than the arms-length investment deals.

We anticipate the average price per square foot to improve in 2011 as more quality product hits the market.  We are under contract on a couple of centers with prices above $300/sf.

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