Sales Volume & Cap Rates

The last two years have seen a single-tenant retail market in flux.

quarterly sales volume vs. average cap rates, retail single-tenant*

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*Monthly chart cycles among office, industrial and retail.
Source: Stan Johnson Co. Research, Real Capital Analytics

The last two years have seen a single-tenant retail market in flux. Sales volumes have been see-sawing between much higher than average totals–in Q1 and Q3 2017, for example–and some of the lowest volume quarters on record in the last five years–Q2 and Q4 2017. Despite the fluctuation, the retail sector managed to report respectable sales volume totals for the year, reporting $14.8 billion. Despite it being the lowest annual total since 2013, we do not expect to see this downward trend continue. Instead, sales should rebound in 2018 as pent up demand drives transaction volume this year. Average cap rates in the single-tenant retail sector have essentially bottomed out. After reaching a low point of 6.1 percent in Q3 2016, the following five quarters have seen rates inch up and down insignificantly. By year-end 2018, we expect to see average retail cap rates noticeably moving in an upward trajectory.

—Focusing on business development, industry and client-specific research, and the analysis of local and national market trends, Lanie Beck has been the Director of Research for Stan Johnson Co. since 2013.

—Posted on Feb. 21, 2018


quarterly sales volume vs. average cap rates, office single-tenant*

*Monthly chart cycles among office, industrial and retail. Source: Stan Johnson Co. Research, Real Capital Analytics
*Monthly chart cycles among office, industrial and retail.
Source: Stan Johnson Co. Research, Real Capital Analytics

Overall single-tenant sales volume surpassed $14 billion in Q3 2017, making it the strongest quarter so far this year. The office sector, however, posted lagging totals compared to the other property types. With a $0.45 billion decline from the previous quarter, the single-tenant office sector reported its lowest quarter of volume in a year with just over $5 billion in sales. Average cap rates for single-tenant office product witnessed a very small decline, falling just four basis points since mid-year. At 6.5 percent, office cap rates currently sit between retail (6.1%) and industrial (6.7%). This continued compression across the industry, albeit it fairly insignificant, continues to illustrate the “U-shaped” cap rate trendline that we’ve been experiencing for the last 18+ months. Looking forward, we expect cap rates to bounce along the bottom for another several quarters before beginning noticeable and sustained upward movement.

—Focusing on business development, industry and client-specific research, and the analysis of local and national market trends, Lanie Beck has been the Director of Research for Stan Johnson Co. since 2013.

—Posted on Jan. 30, 2018