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Slow Dealing Continues as Retail Investment Sales Volume Slides

Investment sales of retail properties dropped slightly in the second quarter, according to New York City-based Real Capital Analytics’ (RCA) Retail Mid-Year Review.

Sales of significant retail properties (transactions greater than $5 million) slipped to $2.9 billion in the second quarter of 2010, down 9 percent from $3.2 billion in the first quarter. Overall it is the seventh time in the last eight quarters that the volume of investment sales on retail properties has been below $5.0 billion, according to RCA, indicating that the overall investment sales climate remains cool.

For the first six months of 2010, the total volume of significant retail properties that changed hands amounted to $6.1 billion. That is a 43 percent gain over the first half of last year, which increasingly is looking like the market’s nadir. Yet even with the total dollar volume up, the number of properties that changed hands was actually down 12 percent compared with last year. In the first half of 2009 462 assets changed hands in comparison with 346 in the first half of 2010.

The investment sales market is dominated by transactions on top properties. As a result, the average cap rates on retail property sales have begun to decline after rising for six straight quarters. Cap rates on closed transactions peaked at 8.25 percent in the fourth quarter of 2009 before dropping to 8.21 percent in the first quarter of 2010 and then to 8.03 percent in the second quarter.

According to the report, “The retail sector exhibited significant variation in cap rates on closed sales over the first part of this year. Some of the highest quality retail assets commanded rates below 7.0 percent, while some distressed assets sold with cap rates close to 10.0 percent.”

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