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What Will Happen with Investment

When will investors look to buy retail assets and is capital available to help finance those deals?

Sentiment shifted considerably compared to previous surveys on investors’ plans to buy, hold or sell in the sector. Responses indicate a disconnect between interest in snatching up properties (potentially at bargain prices) and intentions to sell assets.

In all, 49.0 percent said they think now is the time to hold properties (up from 46.6 percent), while just 16.16 percent think it is time to sell (down from 28.16 percent) and 34.85 percent said it is time to buy (up from 25.24 percent a year ago). It is the largest lean towards buy vs. hold in the six years we have been conducting the survey.

Surprisingly, expectations on cap rates are not substantially different than they were in previous surveys. Overall, 54.7 percent said cap rates will rise in the next 12 months (vs. 45.2 percent a year ago). About one-fourth expect no change (24.o percent) and 21.4 percent expect cap rates might fall.

Responses to the survey signal that the level of debt and equity available for retail real estate investment has shifted. In all, 61.46 percent of respondents said equity is less available than 12 months ago and 61.65 percent said debt is less available. (Both numbers are up substantially from a year ago, when 29.86 percent said equity was less available and 28.38 said debt was less available). Very few respondents said equity (15.12 percent) and debt (13.59 percent) was more available than one year ago. In addition, 14.63 percent said the availability of equity remained unchanged, while 14.06 percent said the same for debt. About 10 percent of respondents said they were unsure about both debt and equity availability.

In looking at specific financing aspects, respondents’ sentiment varied. Looking forward, 28.22 percent expect rates to go up, while 15.84 percent expect them to fall. The majority, 55.94 percent, expect interest rates to remain flat.

Just more than half of respondents (52.24 percent) expect an increase in the so-called risk premium, the spread between the 10-year Treasury rates and retail cap rates. When it comes to loan-to-value (LTV) ratios and debt service coverage ratios in the sector, most respondents (47.55 percent) expect LTV ratios to decrease and 52.2 percent expect DSC ratios to increase.