Institutional investors feel cautious about acquiring power centers, presumably because of lease-up risks involved, according to the Winter 2013 report from the Real Estate Research Corp. (RERC), a registered investment advisor focusing on commercial real estate.

RERC reports that in the fourth quarter of 2012, the investors it surveyed required average pre-tax yields of 7.3 percent to 9.5 percent for power center properties, while required yields for all retail properties averaged 8 percent. The average going-in cap rate for all retail assets was 6.7 percent.

Survey respondents estimated that lease renewal probability at power centers in the current environment would be approximately 66.1 percent, below lease renewal probability for regional malls (69.1 percent) and neighborhood/community centers (67.5 percent). They also expected that vacant power center spaces would take the longest to re-lease, with an expected average of 8.4 months vs. 6.7 months for regional malls and 7.7 months for neighborhood/community centers.

RERC estimates that over a 10-year span, power centers would deliver an average return of 9.2 percent, while regional malls would deliver a return of 8.88 percent and neighborhood/community centers a return of 9.03 percent.

On a risk-adjusted basis, however, the 10-year average return for power centers dropped to 0.7 percent. Returns on regional mall investments, on the other hand, averaged 1.1 percent and on neighborhood/community centers 0.8 percent.

Overall, the majority of surveyed investors (from 53 percent for power centers to 60 percent for neighborhood centers) recommended holding retail properties rather than selling them. Another 30 percent recommended buying neighborhood/community centers.

For all retail asset types in the fourth quarter, investors gave a return/risk rating of 4.9 on a scale of 1 to 10, where 10 was the highest rating possible. That marked a decline from a rating of 5.3 in the third quarter and put retail behind office and industrial properties as a preferred investment class.

Retail also went down on the value vs. price rating, to 4.9 on a scale of 1 to 10. It previously ranked at 5.2.

The companies responding to the survey included, among others, AIG Asset Management, Prudential Real Estate Investors, CBRE, Cushman & Wakefield and Utah Retirement Systems.