Rising Interest Rates Pose Challenges for Retail Transactions, Potentially Impacting Cap Rates

Compared to other property segments, the retail sector has seen modest declines in prices. Surprisingly, retail’s historically low vacancy rates and minimal new constructions over the past decade have challenged the traditional negative perspective on this market. One key element bolstering retail property values has been buyer motivation, although this is expected to shift in 2024.

Retail stands out among property types, with roughly half of all sales transactions occurring under the $5 million mark. Market insiders suggest that many of these investors acquire these properties for tax deferral purposes through exchanges. Typically, these buyers use all-cash transactions, seeking stable, low-risk, bond-like income, yet the primary driver behind these purchases remains tax deferral, with income considered secondary.

*Article courtesy of Costar

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