A record one quarter of all commercial property sales in the fourth quarter of 2002 were for retail properties, reports CCIM/Landauer Investment Trends Quarterly. This represents the highest retail sales volume since the third quarter of 1998, and a 7% increase over the third quarter of 2002.

"With the consumer doing a lot of the work in keeping the economy afloat in the early 2000s, it’s natural to find investors seeking to link their real estate allocations to the broad-based spending power centered in retail properties," says CCIM Institute President Barry Spizer. "Fourth-quarter results mark the return of some large traditional centers, and with them the return of the million sq. ft. sale."

ector analysis shows that REITs bought 46% of retail properties, mostly in top-tier markets. And two retail center deals completed by REITs each exceeded $400 million. On the sales side, foreign sources sold the most retail product, accounting for roughly 30% of the deals.

Retail cap rates averaged slightly below 9%, furthering a trend of stores commanding a price premium versus other real estate assets. Retail sales per sq. ft. have been diluted by a large inventory of store space across the country. This competitive risk demanded a cap rate premium, despite relatively robust consumer spending. National cap rates averaged 9.3% for all properties, a slight increase over the previous quarter.

"Understandably, some observers are concerned that this investment behavior may prove the real estate version of the 'irrational exuberance' that led to the 1990's stock market bubble and subsequent deflation in corporate asset prices," says Hugh Kelly, CRE, author of the ITQ report. "Labor figures, however, look very much on schedule for recovery at this point, if past business cycles are a reliable guide."

Now, however, there are few reliable "guides" to follow as war rages in Iraq and a volatile stock market makes investors cringe. But fear of domestic terrorist attacks hasn’t uniformly affected all sectors of real estate — metro New York led all markets last year with 21% of the total investment volume, while Chicago tallied 14%. The balance of office investment centered in the major markets on either coast. Economic uncertainty kept the hotel market in the doldrums, however. The sector accounted for a meager 2.6% of overall sales volume, which was below the land category at 3.9%.