New data from Real Capital Analytics and CBRE Valuation & Advisory Services shows that the investment sales climate for retail properties began to firm up during the third quarter.

According to New York City-based Real Capital Analytics’ (RCA) Retail Quarter in Review, the investment market for commercial real estate as a whole entered the fourth quarter in its strongest position since late 2007. Sales of significant assets(transactions greater than $5 million) surged to $5.5 billion in the third quarter of 2010, up 131 percent from the third quarter of 2009 and nearly double the figure in the second quarter. It was the second most active quarter since the downturn began, only outpaced by the fourth quarter of 2009.

Year-to-date, RCA has accounted for $11.9 billion in significant retail sales--$7.0 billion for strip centers and $4.9 billion for malls and other retail properties. The mall volume represents a 51 percent increase over the first nine months of 2009 while the strip center volume is up 103 percent. The overall retail figure is up 78 percent. In addition, 671 properties have changed hands—a figure virtually identical to the first nine months of 2009.

According to RCA, “By both measures, sales activity for strip center properties has significantly outpaced other retail assets this year and has recorded far more cap rate compression year-to-date. … Reflecting seller optimism on pricing and an eagerness to complete deals by year end, an additional $6.4 billion of new offerings came to market in Q3, almost twice the amount recorded in the same quarter last year. The good news is that these recent offerings appear to be priced to sell and asking cap rates have converged with closed cap rates for the first time in almost two years. For strip centers, average asking cap rates have actually surpassed closed cap rates.”

The figures were bolstered, in part, by the closing of the $2.3 billion portfolio acquisition of Prime Outlet Centers by Simon Property Group. The deal helped boost the scene in markets where Prime Outlets were located where otherwise the picture may not have looked as bright. According to RCA, “Some markets received an additional boost if they included a Prime Outlet center. Austin, Nashville, Portland and Orlando all witnessed sales volume growth of 500% or more, albeit off a very low 2009 base. Eight other markets, mostly in California or the Northeast corridor, each recorded more than a 100 percent increase in sales volume.”

Overall, RCA said that 43 U.S. markets recorded sales gains, signifying a recovery in transaction activity.

Traded and nontraded REITs and institutional investors remained the most active buyers. The most active sellers include a greater variety of capital sectors, with institutional investors, foreign investors and banks. RCA said that more distressed sales are also occurring. Overall, about 16 percent of retail transactions by count involved distressed assets during the second and third quarters.

CBRE, meanwhile found that retail cap rates stabilized in the third quarter in comparison to the second quarter. The overall U.S. retail cap rate was 8.49 percent, up just one basis point from the revised 8.48 percent figure for the second quarter. The nationwide cap rate is down 52 basis points from a peak of 9.01 percent posted in the fourth quarter of 2009.

According to CBRE, “This data reinforces the notion that cap rate increases seen since early 2007 may be over for now. We are aware of multiple institutional class-A retail properties and portfolios in escrow at rates significantly lower than the average below. Low interest rates on purchase money are frequently credited for expected further cap rate declines into the fourth quarter.”