October 2024

Monthly Retail Investment Stats

Columbus, Louisville, and Milwaukee were the only Midwest cities of the 10 we track that saw above 1.0% of their multitenant retail properties trade in Q2 with 1.50%, 1.19%, and 1.05% trading respectively. St Louis saw the lowest trade rate at only 0.49% while the rest of the cities (Chicago, Detroit, Pittsburgh, Cincinnati, Cleveland, and Indianapolis) were clustered between 0.73% and 0.93%. Chicago, Pittsburgh, Cleveland, Columbus, and Indianapolis all saw an increase in the number of properties traded in Q2 from Q1. A large portfolio sale by Site Centers affected Columbus and Cincinnati directly including almost half of the sales in Columbus and about 20% of the sales in Cincinnati in Q2.

Thoughts From Your Brokers

The long-awaited first drop in interest rates has finally happened with the Fed dropping the Fed funds rate by 50 basis points. So, what does that mean for investors, their current properties, and properties they are looking to buy? Unfortunately, we believe it doesn’t mean much to most of you yet. The lending rates have already seen a substantial decrease in the last 6 months in anticipation of this rate drop. Meanwhile, banks and credit unions aren’t loosening their underwriting guidelines until they are more comfortable with where rates and the economy are going.

This rate drop certainly doesn’t hurt most investors, unless you believe the 50-basis point drop is going to lower your exit cap rate by 50 basis points because it won’t. I was lucky enough to hear Bob Knackal say a few years ago, that?interest rates and cap rates move in?the same direction, but not the same magnitude. Cap rates also tend to lag the movement of interest rates while being more closely correlated to the flow of capital than interest rates.

What this means for many investors is they need to continue to be patient. We will most likely see an increase in deals coming to the market like we have over the last few months. The properties that are attractively priced will generate a lot of interest and more so with the feeling that borrowing is more affordable and available than it was a month ago. It will be more important than ever for sellers to qualify their buyers while proving in many instances, the best price doesn’t always mean the best offer if the best price offer can’t close. We will continue to advise our clients of the pros and cons of all offers to help them determine which is the best offer for them in this unique environment.

5-year US Treasury Rate for the last 12 months

Economic Outlook

The Fed dropped interest rates for the first time since 2020 and did so with a bang when they lowered the Fed funds rate by?50 basis points at their meeting on September 18th. Since then, the 5-year UST and 10-year UST have gone up almost 45 basis points and 40 basis points respectively. Unfortunately for many investors, the treasury rates are impacted by more than just the Fed’s target rate and economic indicators continue to tell a mixed story. THE PCE index released last week showed a 0.1% month-over-month increase in August while the 12-month inflation rate is down to 2.2%, the lowest since February 2021. The 5-year UST remains down almost 85 basis points from the year-to-date high in April which has provided some relief for borrowers while uncertainty around the economy, interest rates, and availability of capital remains.

Recent Market Comps