The Analysis of Retail Property Performance in DC-VA-MD-WV
The performance of retail property is an important economic sector in DC-VA-MD-WV-Washington-Arlington-Alexandria, particularly as a key indicator of real estate investment. The industry has weathered up and down over the past ten years. First hit by the economic downturn and then the SARS epidemic, total retail space volume held virtually declining from 97.9% in 2006 to 90.9% in 2011, with the leases of retail space shrinking the most. Even so, Retail’s occupancy rate keeps more than 90%. And then retail saw a mild progress led by the economic resurgence. With that, retailers started feeling better about expanding again. The vacancy rates fell to 6.2% in 2015, down from the 7.9% vacancy rate in 2013, which could bode well for the regional mall space as a whole. The sustained expansion has also brought with great rent incomes.
Chart 1: Retail Occupancy Rate Trends
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Between 2005 and 2015, the average cap rate was 1.2% for retail property. Since 2005, retail has experienced a steady decline in cap rates due to the global financial crisis hampered consumer sentiment. The cap rate for retail was -4.29%, which is the lowest it has been since 2005. The cap rates then re-accelerated strongly and peaked at 4.32% in 2010. It was slightly
lower in every year until 2015. Despite the high base of comparison, the cap rates of retails still attained a notable growth of 2.97%, in line with the trend growth over the past ten years.
Chart 2: Retail Capitalization Rates
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The market-derived capitalization rate can be applied to a retail property's net operating income to estimate the current value of a property. Retail’s rental income has increased at an annual average rate of 0.57% during last ten years. The rental income growth virtually fluctuated between 10% from 2005 to 2015. Market value for retail property is generally improving from 2005 to 2015. Market value of retail property has enjoyed a period of uninterrupted rise until the global financial crisis hampered consumer sentiment in late 2008 and early 2009. Even so, retail market value only saw a mild setback during this difficult period. After that, market value was slightly higher in every year and leaped further to $496.38/sf in 2015.