What’s New in Strip Centers for 2024
Shift of Capital Placement
There’s a significant amount of capital pursuing a limited number of strip center deals. We’re noticing that traditional retail investors are hyper-focused on the unanchored strip center side of their portfolio. Additionally, investors from other asset classes, such as multifamily, land, and industrial, are eager to shift focus and exchange in pursuit of higher yields.
Cost of Capital Challenge
The cost of funds across the entire capital stack remains elevated. The cost of construction for outparcel retail centers and the anchored products remains high. On the debt side, regional and local bank rates remain very high, so life company and credit union loans remain the debt source of choice. The 10-Year Treasury has been volatile the first part of the year, ranging between 3.8% and 4.7%, so rate lock timing has been critical. We are also seeing seller financing as a bridge to positive cash flow in limited cases.
Reach out to Matthews™ Capital Markets for your debt sourcing needs.
Rent Bumps of 20-30%
Owners are significantly below market rates despite increasing expenses. Initially hesitant to approach their tenants, they are often surprised to find that tenants accept the increase because, based on the high national occupancy rates of around 97%, there is nowhere else for them to go.
Lack of Available Strip Centers
Fewer strip centers have been coming to market, as most owners have favorable debt on current holdings in the 3-4% interest rate range. But for those that do elect to come to market in the current environment, buyers are getting aggressive at competing for the product.
Mom-and-Pops vs. Credit
The “credit” in small entrepreneurial owners lies in the fact that their livelihoods and families depend on the success of these businesses. Who doesn’t love going to your local pizza shop with authentic Italian food with the same workers who have been there forever rather than a chain? If your personal financial life is within the walls of your retail space, you will try much harder to make it work.
