Private Investors Race To Nab Retail Deals Ahead of Institutional Capital

Private investors are flocking to the retail space and now account of 53% of all deals greater than $50 million, with capital particularly focused on high-quality assets.

Last year, private capital accounted for 45.5% of total market share, with $6.7 billion invested in single-asset transactions over the $50 million price point, according to JLL. Private capital was also deployed in 11 retail portfolio acquisitions valued at just under $1.5 billion last year.

Over the last year to year-and-a-half, investment managers had “limited retail appetite” due to over-allocations in their portfolios, says Barry Brown, senior managing director and retail co-leader in capital markets at JLL. Public REITs were also “relatively quiet,” save a few specific strategic deals.

But as of late, both investor types have picked up deal flow, and more experienced private investors have raised significant equity in a short period. A particular area of focus/? Grocery-anchored retail deals, which accounted for 31% of all private capital retail acquisitions.

“Private investors have migrated to acquiring shopping centers because of better yields, compared with other real estate,” Jim Michalak, managing partner at Plaza Advisors, told The Wall Street Journal in an earlier interview.

According to JLL’s latest Grocery Tracker report, grocery-anchored retail had the largest share of retail property acquisitions in 2021, totaling $13.3B in sales. Last year saw a record number of grocery-anchored retail property transactions with 735 total trades, 13 more than the previous record set in 2014. 

Historically, the subsector has been dominated by big players like Blackstone and Stockbridge, and a rash of joint ventures have formed over the last year among big institutional players in a race to acquire trophy properties coast to coast.  But Chris Angelone, JLL’s retail co-leader in capital markets, says private capital is winning out on some of the largest deals the firm has closed over the last year and a half, often outbidding REITs and institutional investors.

 Private investors nabbed 32 trades over $50 million through the first quarter, according to Real Capital Analytics. Conversely, institutional investors and REITs closed 15 retail deals. MSCI Real Assets data shows that retail deal flow hit $82 billion, nearly 25% higher than pre-pandemic levels, last year, and totaled $25 billion by the end of the first quarter.

JLL expects the trend to continue, even as e-commerce sales as a percentage of total retail sales continues to fall. Rents are increasing as a lack of supply constrains retailers looking to expand their footprints.

“Retail fundamentals continue to show signs of strength and investors can realize compelling risk-adjusted returns relative to other asset classes,” said Senior Managing Director Danny Finkle, JLL’s retail co-leader in capital markets.