Washington D.C. is the nation’s strongest retail investment market, beating out 37 other U.S markets for top spot on Marcus & Millichap’s retail index report. This is the second consecutive year that Washington D.C. has won top honors on the index report.
"Investors are sold on the D.C. retail market because of its solid rental market fundamentals and the area’s attractive demographics," says Andrew Boyle, regional manager of Marcus & Millichap’s Washington D.C. office. The city’s unemployment rate (MSA) was only 3.5% earlier this year, the lowest in the nation at the time. Consumer spending has held up well, too, compressing retail vacancy to 6%, down from 6.7% in 2001. On the new supply side, delivery of brand new space is expected to decline this year as 2.1 million sq. ft. are scheduled for completion, down from 2.7 million in 2002.
Boyle cites insatiable investor demand for single-tenant properties as responsible for pushing prices up and cap rates down. There are also significant barriers to entry in the D.C. market, making outlying areas such as Prince George’s County attractive to investors who are banking on a metro area expansion into these outer regions.
Both single and multi-tenant retail properties experienced massive appreciation last year. The median sales price for single-tenant properties rose 24% in 2002 to $175 per sq. ft. Cap rates, in turn, slid from 10% to 8.8%. For shopping centers, median prices climbed nearly 20% to $147 per sq. ft. as cap rates fell to 9.3% from 10.6%.
Rounding out the report’s top five strongest retail investment markets for 2003 in order were Orange County, Calif.; San Diego; Boston and Fort Lauderdale, Fla. All of these markets share low vacancies, prospects for rental growth, limited new development and solid employment and household growth.
On the bottom of the list, Cleveland, Ohio, was ranked No. 38 in the nation largely due to its inflated vacancy rates and less than stellar economic outlook.
Between Cleveland and Washington, however, there were some surprises. Las Vegas made an aggressive jump in year-over-year rankings, climbing from No. 23 to No. 13. The city’s improved ranking was fueled by the highest expected employment and household growth of the 38 markets surveyed. Conversely, Seattle slid 18 spots in the ranking year-over-year to No. 30 due to the city’s heavy economic and employment setbacks in 2002.