The market for urban retail condos has witnessed a sharp resurgence in the past couple months. In-fact, we are seeing cap rates and prices that are reminiscent of the markets heyday back in 2005-2007. There is such a strong demand for these properties that they are routinely receiving multiple offers. This trend is being fueled by a number of factors such as inherently strong real estate quality, low interest rates, and a surplus of investors willing to deploy capital.
It is no secret that a great deal of the net lease market’s recent success is due to the security it offers investors. Net lease properties offer investors reliable income streams with little to no active management. These qualities are only enhanced in the context of urban condos. Unlike properties located in tertiary markets, urban retail can depend on higher foot traffic and a greater intrinsic value. This serves to add an extra layer of security to the investment – should a tenant leave it will not be hard to replace them.
Investors know this and are actively seeking these properties. Low interest rates coupled with a surplus of capital (that had previously been sitting on the sidelines) have led to a perfect storm of rising prices and falling cap rates. Likewise, many sellers are reluctant to sell because they would face the same problem in redeploying their capital. As demand continues to gain momentum it is likely investors will dig even deeper for tenant and location, resulting in downward pressure on cap rates.
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