TRAFFIC PATTERNS

WHERE ARE PRICES GOING?

After showing signs of stabilization, pricing on retail properties jumped in the third quarter and cap rates fell. Average price per square foot on retail assets — which had stayed in a tight range of $142 to $156 per square foot for seven quarters — jumped to $168 in the third quarter. Meanwhile cap rates, which had hovered in the 7 percent range, dipped to 6.7 percent.

RETAIL RISES AGAIN

Retail REITs rode a late-year rally and ended 2006 on a high note. While total returns didn't match 2003 or 2004 levels, they were more than twice as high as 2005.

RETAIL TOTAL RETURNS (RETURNS IN PERCENT, 1994 — 2006)
Composite REIT Index	1994	1995	1996	1997	1998	1999	2000	2001	2002	2003	2004	2005	2006
Retail	3.19	5.10	34.65	16.99	-4.94	-11.77	17.97	30.42	21.07	46.77	40.23	11.80	29.01
Strip Centers	1.75	7.36	33.55	21.44	-6.99	-10.71	15.10	29.89	17.72	43.12	36.25	9.27	34.87
Regional Malls	8.77	3.00	45.27	13.69	-2.62	-14.58	23.50	31.88	24.56	52.24	45.01	16.54	23.83
Freestanding	-5.49	31.59	30.77	17.77	-6.25	-4.89	8.95	23.95	21.76	35.91	32.87	-0.49	30.74
Source: NAREIT

INCHING UP

After years of record-low levels, interest rates are creeping back to pre-9/11 levels. Recently, an inverted yield curve has kicked in with long-term rates trading less than short-term rates.

TREASURY YIELDS AND BANK RATES
	1-MO. LIBOR	3-MO. TREAS.	1-YR. TREAS.	3-YR. TREAS.	5-YR. TREAS.	10-YR. TREAS.
Dec. 2000	6.58	5.94	5.60	5.26	5.17	5.24
Dec. 2001	1.88	1.72	2.22	3.62	4.39	5.09
Dec. 2002	1.35	1.21	1.45	2.23	3.03	4.03
Dec. 2003	1.08	0.91	1.31	2.44	3.27	4.27
Dec. 2004	2.32	2.22	2.67	3.21	3.6	4.23
Dec. 2005	4.34	3.97	4.35	4.39	4.39	4.47
Nov. 2006	5.32	5.07	5.01	4.64	4.58	4.6
Source: Federal Reserve Board

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