Retail market: will cap-rate compression level off this year?
The Miami investment market is flush with liquidity as consistent yields and improving fundamentals keep investor sentiment optimistic in 2016, according to a recent Marcus & Millichap report. But as the real estate cycle evolves, investors have begun showing some resistance to outsize pricing, which may cause exceptional cap-rate compression to level off this year – particularly for single-tenant properties.
Multi-tenant assets, on the other hand, may have some room for growth as less risk-adverse investors continue to seek value-added and distressed properties to further bolster returns. First-year yields for these properties can average in the high-6 to mid-7 percent range, while well-located, unanchored assets reach the 5 percent territory, according to Marcus & Millichap. Well-funded investors – mostly from Latin America – had been bidding heavily on available product, helping drive valuations to a 15-year high, according to Marcus & Millichap.
Tight market conditions and continued growth in the tourism industry has created a bullish retail market in Miami-Dade County. Despite record development activity, over construction has not been a concern, as net absorption of more than 1.7 million square feet will encourage further vacancy compression this year.
The report states, “Miami-Dade will remain in the top five of the nation’s tightest metros, further emboldening market participants.
Read the full report here: Marcus & Millichap research