U.S. cap rates cotinue to shrink: Report


Publish Date: August 27, 2015

Accelerating sales activity is driving down yields in the U.S. shopping-center investment market, according to Marcus & Millichap’s mid-year retail outlook report. Deal flow increased throughout the first half of 2015, with the average cap rate for single-tenant assets beginning to flatten after tumbling to the low-6-percent range depending on lease term and tenant credit, according to John Chang, the firm’s vice president of retail research. Multi-tenant retail properties have experienced a less dramatic tightening, but the average cap rate for these assets has dropped to close to 7.3 percent after peaking at 8.7 percent in 2010, he says. “The cap rate spread between primary and tertiary markets has narrowed from nearly 200 basis points in 2012 to about 150 basis points in recent months,” Chang writes in the report. “With cap rates levelling in the best markets, and additional activity in secondary and tertiary metros, the spread will likely continue to contract.”