Shopping Centers Today International

MAR 2016

Shopping Centers Today is the news magazine of the International Council of Shopping Centers (ICSC)

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Page 48 of 59

properties into the mix, and things could change. The market for single- tenant net lease properties this year will depend on interest rates and the demand from 1031 buyers, according to Feeney. "Most believe there is a cor- relation between rising interest rates and cap rates," Feeney said. "However, the supply-and-demand imbalance can alter this relationship." Cap rates are still headed down and are likely to remain down this year be- cause of a lack of inventory, says Andy Bogardus, San Francisco–based senior managing director of net-lease invest- ment services for Cushman & Wake- field. "We are seeing more buyers than properties available. We are seeing higher prices and low cap rates, mostly in high-demand areas." According to Jason Fox, head of global acquisitions at W.P. Carey, a New York City–based net-lease REIT, "the largest segments of net lease par- ticipants expect cap rates to remain un- changed from 2015 levels to the end of 2016. Our own market feedback in- dicates [that] although deals continue to clear at lower cap rates, the majority of bids are clustered at slightly higher levels, indicating that cap rates may have begun to firm [up], with the po- tential to move higher." Both Bogardus and Fox are hint- ing that there is divergence in the market, and Czarnecki agrees. "There is a supply-demand imbalance in dif- ferent parts of the market," Czarnecki said. "There is plenty of demand and not much building, but it all depends on which niches of the market you are playing and how you are sourcing your properties. It's the folks on the 1031 side of the market who have experi- enced severe cap-rate compression." The good news is that develop- ment will increase, pushing more properties into the deal pipeline. Up until 2008, there was a consistent trend of 200 million to 225 million square feet of new retail deliveries, says Rose. Then the market froze, and new retail property deliveries dropped to about 50 million square feet. "Today there is roughly 400 mil- lion square feet of retail in some stage of planning or under construction [in the U.S.]," Rose said. "I would estimate about half of that would get done, and it will start to surface in 2017 and 2018. Over 50 percent of new construction will be [single- tenant net lease]." Last year Broadstone acquired some $551 million worth of net-lease properties through 28 transactions for a total of 117 properties. The firm is expecting to complete that same amount of deals this year. "I don't see a lack of product," Fruitman said. "You just have to be prudent as to what you buy." S C T M a r c h 2 0 1 6 / S C T 49

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