WHAT'S NEW IN NET LEASE
Boulder Group's breaks down retail sales by cap rate showing some fluctuations when it comes to price per square foot.
| CAP RATE BRACKET | AVG. PRICE | AVG. $/SQ. FT. | % OF DEALS |
|---|---|---|---|
| 0.00-6.99% | $3,146,116.43 | $388.93 | 36.09 |
| 7.00-7.99 | 2,516,293.20 | 284.76 | 28.04 |
| 8.00-8.99 | 1,778,736.30 | 208.89 | 18.26 |
| 9.00-9.99 | 1,290,884.32 | 158.79 | 6.99 |
| 10.00-10.99 | 1,049,944.87 | 163.23 | 5.50 |
| 11.00+ | 1,169,495.89 | 276.85 | 5.13 |
Cap rates seemed to bottom out in the $7-million range on retail net lease transactions during the first quarter.
| PRICING BRACKET | AVG. CAP | AVG. $/SQ. FT. | % OF DEALS |
|---|---|---|---|
| 0-$999,999 | 8.38% | $172.44 | 35.30 |
| 1,000,000-$1,999,999 | 7.40 | 350.07 | 28.36 |
| 2,000,000-$2,999,999 | 7.08 | 399.68 | 13.68 |
| 3,000,000-$3,999,999 | 7.21 | 344.57 | 7.46 |
| 4,000,000-$4,999,999 | 7.10 | 321.80 | 4.50 |
| 5,000,000-$5,999,999 | 7.03 | 348.28 | 3.23 |
| 6,000,000-$6,999,999 | 7.01 | 373.23 | 1.98 |
| 7,000,000-$7,999,999 | 6.58 | 348.74 | 1.21 |
| 8,000,000-$8,999,999 | 6.96 | 287.72 | 0.98 |
| 9,000,000-$9,999,999 | 7.19 | 373.40 | 0.65 |
| 10,000,000+ | 6.56 | 358.34 | 2.66 |
| Source: Boulder net Lease Funds LLC | |||
Mean cap rates by property type during the first quarter.
| SECTOR | MEAN CAP | CHANGE |
|---|---|---|
| Industrial | 8.00 | 0 bps |
| Retail | 7.27 | 2 bps |
| Office | 7.64 | 7 bps |
| 10-Year | 4.69 | 26 bps |
| Prime | 8.25 | 0 bps |
| LIBOR (6-Mo.) | 5.39 | 9 bps |
SCOPING OUT THE SCENE
Existing inventory for both community and neighborhood centers is fast approaching one billion square feet.
| Community | Neighborhood | |
|---|---|---|
| 1999 | 835,491,000 | 781,609,000 |
| 2000 | 860,417,000 | 798,922,000 |
| 2001 | 902,924,000 | 833,926,000 |
| 2002 | 920,428,000 | 846,662,000 |
| 2003 | 933,186,000 | 860,686,000 |
| 2004 | 948,584,000 | 876,498,000 |
| 2005 | 966,005,000 | 893,030,000 |
| 2006 | 979,312,000 | 906,519,000 |
The amount of space available at community centers rose in 2006 after falling the two previous years.
| Vacant Stock | Occupied Stock | |
|---|---|---|
| 1999 | 56,517,000 | 778,974,000 |
| 2000 | 53,019,000 | 807,398,000 |
| 2001 | 63,638,000 | 839,286,000 |
| 2002 | 69,447,000 | 850,981,000 |
| 2003 | 71,215,000 | 861,971,000 |
| 2004 | 68,608,000 | 879,976,000 |
| 2005 | 64,076,000 | 901,929,000 |
| 2006 | 67,213,000 | 912,099,000 |
Net absorption at both community and neighborhood centers hit their lowest points in years in 2006.
| Community | Neighborhood | |
|---|---|---|
| 1999 | 13,800,000 | 13,753,000 |
| 2000 | 21,264,000 | 14,953,000 |
| 2001 | 9,082,000 | 5,675,000 |
| 2002 | 11,695,000 | 14,086,000 |
| 2003 | 10,991,000 | 14,457,000 |
| 2004 | 18,005,000 | 14,401,000 |
| 2005 | 21,953,000 | 12,935,000 |
| 2006 | 10,170,000 | 8,966,000 |
The number of completions dropped in 2006 after reaching record highs in 2005 for both community and neighborhood centers.
| Community | Neighborhood | |
|---|---|---|
| 1999 | 12,790,000 | 9,715,000 |
| 2000 | 15,684,000 | 8,834,000 |
| 2001 | 16,259,000 | 10,438,000 |
| 2002 | 16,867,000 | 12,438,000 |
| 2003 | 12,758,000 | 14,024,000 |
| 2004 | 15,398,000 | 15,812,000 |
| 2005 | 17,421,000 | 16,532,000 |
| 2006 | 13,307,000 | 13,489,000 |
There was also more vacant space at neighborhood centers in 2006, reaching the highest point ever.
| Vacant Stock | Occupied Stock | |
|---|---|---|
| 1999 | 56,711,000 | 724,898,000 |
| 2000 | 52,084,000 | 746,838,000 |
| 2001 | 59,723,000 | 774,203,000 |
| 2002 | 58,373,000 | 788,289,000 |
| 2003 | 57,940,000 | 802,746,000 |
| 2004 | 59,351,000 | 817,147,000 |
| 2005 | 62,948,000 | 830,082,000 |
| 2006 | 67,471,000 | 839,048,000 |
Even with a slowing leasing environment, the percent of vacant space at both formats remained at healthy levels.
| Community | Neighborhood | |
|---|---|---|
| 1999 | 6.8 | 7.3 |
| 2000 | 6.2 | 6.5 |
| 2001 | 7.0 | 7.2 |
| 2002 | 7.5 | 6.9 |
| 2003 | 7.6 | 6.7 |
| 2004 | 7.2 | 6.8 |
| 2005 | 6.6 | 7.0 |
| 2006 | 6.9 | 7.4 |
Note: The Reis database includes neighborhood and community retail properties in complexes with 5,000 or more square feet. Although the database may also contain selected freestanding, mixed-use, outlet center, power center and regional properties, these are excluded from inventory, completions and all otherReis competitive retail statistics.
WHO IS BUYING RETAIL?
| RANK | RANK | 06-07 | |
|---|---|---|---|
| MSA | 07 | 06 | CHANGE |
| New York City | 1 | 4 | 3 |
| Ft. Lauderdale | 2 | 9 | 7 |
| Phoenix | 3 | 5 | 2 |
| Oakland | 4 | 3 | -1 |
| Seattle | 5 | 8 | 3 |
| San Diego | 6 | 1 | -5 |
| Orange County | 7 | 2 | -5 |
| San Francisco | 8 | 7 | -1 |
| Washington D.C. | 9 | 6 | -3 |
| San Jose | 10 | 17 | 7 |
| West Palm Beach | 11 | 12 | 1 |
| Los Angeles | 12 | 14 | 2 |
| Las Vegas | 13 | 19 | 6 |
| Atlanta | 14 | 13 | -1 |
| Austin | 15 | 11 | -4 |
| Riverside/San Bernardino | 16 | 10 | -6 |
| Portland | 17 | 21 | 4 |
| Boston | 18 | 15 | -3 |
| Northern New Jersey | 19 | 16 | -3 |
| Miami | 20 | 20 | 0 |
| Tucson | 21 | 18 | -3 |
| Chicago | 22 | 22 | 0 |
| Tampa | 23 | 25 | 2 |
| Dallas/Ft. Worth | 24 | 26 | 2 |
| Denver | 25 | 24 | -1 |
| Houston | 26 | 29 | 3 |
| Orlando | 27 | 23 | -4 |
| Sacramento | 28 | 27 | -1 |
| San Antonio | 29 | 32 | 3 |
| Minneapolis/St. Paul | 30 | 30 | 0 |
| Philadelphia | 31 | 28 | -3 |
| Charlotte | 32 | 35 | 3 |
| Jacksonville | 33 | 31 | -2 |
| Salt Lake City | 34 | 34 | 0 |
| New Haven | 35 | 33 | -2 |
| Indianapolis | 36 | 37 | 1 |
| Kansas City | 37 | 39 | 2 |
| Columbus | 38 | 41 | 3 |
| Milwaukee | 39 | 36 | -3 |
| Detroit | 40 | 38 | -2 |
| Cleveland | 41 | 40 | -1 |
| Cincinnati | 42 | 42 | 0 |
| Source: Marcus & Millichap | |||
AND THE WINNER IS…
Centro Properties Group was the top buyer of retail property in 2006.
| 2006 VOLUME | |||
|---|---|---|---|
| Buyer Name | Type | $ millions | Props. |
| Centro Properties Group | Foreign | $3,702 | 162 |
| Kimco Realty | REIT/Public | $3,623 | 150 |
| Watt Commercial Properties Inc. | Private | $3,185 | 156 |
| Prudential RE Investors | Institutional | $2,825 | 107 |
| Triple Five Group | Private | $1,800 | 1 |
| Staubach Capital Partners | Private | $1,293 | 342 |
| Weingarten Realty | REIT/Public | $942 | 34 |
| Investcorp | Foreign | $764 | 37 |
| Inland Real Estate Group | Syndicator | $760 | 33 |
| Inland Real Estate Corp. | REIT/Public | $653 | 22 |
| Source: Real Capital Analytics | |||
RETAIL REITS RALLY ON
After another banner year in 2006, retail REIT stocks are off to another hot start in 2007. Leading the way are regional mall REITs, which, as of late April, were already up 13.85 percent for the year.
| COMPOSITE REIT INDEX | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| '94 | '95 | '96 | '97 | '98 | '99 | '00 | '01 | '02 | '03 | '04 | '05 | '06 | '07* | |
| Retail | 3.19 | 5.10 | 34.65 | 16.99 | -4.94 | -11.77 | 17.97 | 30.42 | 21.07 | 46.77 | 40.23 | 11.80 | 29.01 | 9.80 |
| Shopping Centers | 1.75 | 7.36 | 33.55 | 21.44 | -6.99 | -10.71 | 15.10 | 29.89 | 17.72 | 43.12 | 36.25 | 9.27 | 34.87 | 6.41 |
| Regional Malls | 8.77 | 3.00 | 45.27 | 13.69 | -2.62 | -14.58 | 23.50 | 31.88 | 24.56 | 52.24 | 45.01 | 16.54 | 23.83 | 13.85 |
| Freestanding | -5.49 | 31.59 | 30.77 | 17.77 | -6.25 | -4.89 | 8.95 | 23.95 | 21.76 | 35.91 | 32.87 | -0.49 | 30.74 | 1.77 |
| * Through April 20 Source: NAREIT | ||||||||||||||
RETAIL REITS WIN
Over the last five years, mall REITs have posted an amazing 332 percent return while shopping centers have delivered a 246 percent return, leading all other property sectors in Merrill Lynch's coverage universe.
| SECTOR | YEAR TO DATE | LAST 12 MONTHS | LAST 3 YEARS | LAST 5 YEARS |
|---|---|---|---|---|
| Industrial | 5.50% | 26.10% | 111.00% | 192.00% |
| Diversified | 0.90 | 25.60 | 107.00 | 180.00 |
| Self Storage | -1.20 | 24.80 | 120.00 | 175.00 |
| Net Lease | 3.00 | 21.60 | 78.00 | 163.00 |
| Malls | 15.50 | 37.30 | 139.00 | 332.00 |
| Health Care | 1.70 | 37.60 | 81.00 | 169.00 |
| Shopping Centers | 7.30 | 31.00 | 124.00 | 246.00 |
| Office | 3.00 | 25.60 | 112.00 | 181.00 |
| Apartments | -2.50 | 17.50 | 118.00 | 145.00 |
| Hotels | 8.60 | 27.30 | 98.00 | 111.00 |
| Manufactured Housing | -0.20 | 15.80 | 34.00 | 75.00 |
| Entire Index | 4.20 | 27.00 | 110.00 | 170.00 |
| Source: Merrill Lynch | ||||
REITs tapped public markets heavily in 2006 and are off to a fast start in 2007.
| YEAR | PROCEEDS FROM COMMON SHARES |
|---|---|
| 1990 | $288.50 |
| 1991 | $495.90 |
| 1992 | $1,581.70 |
| 1993 | $11,629.00 |
| 1994 | $9,578.30 |
| 1995 | $5,786.30 |
| 1996 | $8,743.20 |
| 1997 | $20,894.00 |
| 1998 | $10,982.10 |
| 1999 | $3,241.50 |
| 2000 | $826.60 |
| 2001 | $2,898.90 |
| 2002 | $2,996.50 |
| 2003 | $5,746.10 |
| 2004 | $11,222.00 |
| 2005 | $8,782.30 |
| 2006 | $14,727.90 |
| 2007* | $3,156.00 |
| *As of 4/19/2007 | Source: Merrill Lynch |