Southeast Strip Center Investment Market Feels a Chill

With the slowdown of the economy and the huge downturn in the housing market, the retail real estate market is taking a hit across the board and many investors are feeling sheepish–especially in the southeast. According to Ray Hayhurst, vice president of retail investment with real estate services firm Grubb & Ellis Inc.|Commercial Florida, the Southeast’s previously hot-strip center investment market has cooled down more than any other region in the country. “There was a huge volume of investment in 2006 and part of 2007 in the southeast, but it was down 88 or 89 percent in the first quarter for retail strip center sales over $5 million,” Hayhurst said. The problem centers partially on the credit market, which is having an impact beyond national borders. “There are international forces that have changed radically,” he noted. “Australian buyers were the most active in the southeast in 2006 and 2007, but now they’re under capital constraints.” Referring to information from commercial real estate research firm Real Capital Analytics, he said Australian investors really haven’t bought anything this year through the first quarter. It’s not just the buyers who are being standoffish in the southeastern U.S. retail strip center game these days. “Owners are thinking, the cap rate last year was 6 percent but now it’s 7 percent, and that has a significant impact on value, so it takes time for the market to adjust, and for buyers and sellers to adjust,” Hayhurst explained. While the southeast is having a particularly hard time of it, the rest of the country is not that far behind, as national numbers are down 70 percent. Despite the gloomy statistics, however, investors are expected to come around, to a certain extent, in the not-too-distant future. “It’s short-term,” he said. “I don’t think it will be over this year, but it will be short term. I think we’ll begin to see improvement in the first part of next year, but the improvement will be an adjustment between buyers and sellers on the value of properties based on the debt and finance markets.”