Intelligent Investment

Retail Sector Provides Strong Value-Add Investment Opportunity

December 21, 2021

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Executive Summary

  • Investors should reconsider their allocations to benefit from misvalued retail.
  • In recent years, retail’s share of overall investment transaction activity in the U.S. dropped to an historical low of 9% in 2021.
  • Retail has the highest cap rate (6.4%) among the four major sectors (office, industrial, apartment and retail).
  • However, the retail sector has been recovering as evidenced by discounts to net asset value (NAV)for the decline in public REITs for shopping centers (-2.3%)
  • and regional malls (-8.3%) by more than 40% in May 2020.
  • Grocery-anchored retail properties are out-performers in the retail sector, a trend which is expected to continue.
  • Sunbelt markets are expected to produce higher internal rates of return (IRRs) benefitting from continued strong market fundamentals.

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