According to data surveyed from Real Capital Analytics by The Real Deal, investors bought or went into contract on a total of $276 million worth of retail condo properties in the first eight weeks of 2018, which is more than half of 2017’s total of $523 million of retail condo deal making.
The renewed interest in retail condominium properties follows a year in which the sector took a hammering, as investors pulled back from what had been one of the most desired and highly speculative property types. Retail rents were climbing at astronomical rates in the years following the recession. According to CBRE, Manhattan average asking retail rents had dropped more than 18% year-over-year at the end of 2017, to $883 per square foot. following a period between 2010 and 2014 when asking rents had doubled along some of Manhattan’s priciest shopping districts. Now as the retail leasing market is starting to find a new equilibrium, investors are getting a better sense of what properties are worth. Industry insiders say capitalization rates have increased from a low of 4.0% to 4.5%-4.75% since the days of the rent run-up, as buyers today are no longer willing to accept as much risk on their investment. Brokers are advising their clients to hold off buying newly listed retail condominium properties until more potential deals become available in the foreseeable future as buyers who purchased their properties at peak prices during the heady days of the market and unable to achieve their projected rents may be forced to sell. According to Brian Steiner, a principal at the alternative lender Maxim Capital Group: “When you get into the point of the cycle where there’s distress, that generally creates buying opportunities."