After a period of price discovery, the Philadelphia region is adjusting to a new valuation standard for commercial real estate assets. Recent transactions indicate that the higher interest rates of the past year have led to a rise of approximately 100 basis points in capitalization rates compared to 2022 levels. In 2023, around 30% of sales closed with cap rates between 7% and 8%, with few transactions falling below a 6% cap rate.
Simultaneously, sale-ask price spreads have narrowed from 11% in the first quarter of 2023 to 6.5% in the fourth quarter, reflecting an improved alignment of buyer and seller expectations over the course of the year.
Despite the increased interest rates, grocery-anchored retail centers continue to attract investment, albeit at slightly higher cap rates. For instance, in October 2023, Christiana Crossing in Wilmington, Delaware, sold for $29.8 million, or $250 per square foot. The ShopRite-anchored retail center boasted a 96.5% occupancy rate and a Weighted Average Lease Term (WALT) of six years, closing at a 7.3% cap rate.
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