Retail cap rate trends are showing a much different pattern, particularly in the fourth quarter. The noticeable jump in retail cap rates last quarter reflects the decline in overall retail property fundamentals. At 8.1%, the average cap rate climbed above the ten year average retail cap rate.
The trend here shows the same volatility as the office cap rate trend, but the upward slope of the 12-month rolling average since mid-2015 is a clear indication that investors have adjusted their valuations of retail properties and grown more cautious with pricing.
Some might question why retail cap rates aren’t even higher than this given the seemingly weekly announcements of more store closures. Again we reiterate our caveat that pricing trends as shown in cap rate data may not reflect average trends in pricing metrics. Again, the “selection bias,” even for retail is due to the likelihood of only “better” properties trading in the quarter, at cap rates, which while higher, correspond to a pattern of moderate prices and therefore lower cap rates than one might expect.