Study Finds Retail Property Prices Could Rise by 10%

"Numerous investors [will] aggressively bid on assets to initiate or expand a position in the fast-growing metro," says Erica Linn, Marcus & Millichap's national research manager. "Deals transacted in the market so far this year appear to illustrate buyers' willingness to pay above-market prices for well-located properties."

As an example, Linn cites the $137 per sf paid by a REIT for the Palm Springs Center at Palm Springs Drive and State Road 436 in the suburb of Altamonte Springs. Albertson's and Home Depot anchor the center which is in an established retail corridor with a population density of 3,900 persons per square mile. In another sale, a private out-of-state buyer purchased the 102,402-sf Vista Centre Shoppes near Walt Disney World in Lake Buena Vista for $153 per sf.

"Institutions are [also] actively pursuing lower-priced neighborhood centers," Linn notes. The 148,100-sf Piedmont Plaza in suburban Apopka is an example. Inland Real Estate of Oak Brook, IL paid a below-market $69 per sf for the property.

New construction is expected to slow this year by 14%. Only 1.8 million sf of new product is on the delivery schedule. Vacancy is projected to end the year at 6.2%, down 20 basis points from year-end 2004, according to the Marcus & Millichap report. "Vacancy dipped to 6% in the first quarter, but this is typically a strong period whenever the local economy is expanding," Linn says.

With space demand holding firm, asking rents are forecast to climb 2.9% in 2005 to $15.63 per sf. "The tightening Northwest submarket, where rents have been $14.20 per sf so far this year, could outperform in the near term, as retailer interest remains high," the researcher adds.