Retail Investors Target Secondary Markets

Secondary markets will draw retail investors with more attractive pricing this year, though core retail assets in primary markets will lead in net operating income growth, according to a Marcus & Millichap report. Repositioning opportunities in underserved markets could offer continued cash flow and a quicker return on investment. Retail investors will also benefit from the return of the commercial mortgage-backed securities market this year. An uptick in investment activity will partly depend on strengthening fundamentals. If current projections remain on track, retail net absorption could reach more than 77 million square feet this year, driving vacancy down 50 basis points to 9.2 percent. Due to downsized retail formats, growth in store-based sales should continue to surpass net absorption. In addition, effective rent growth, strengthened by a modest reduction in concessions, is projected to increase by 1.2 percent to $16.12 per sf, and asking rents should rise by 0.5 percent to $18.55 psf.

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