2022 proves to be record year for retail, multi-family investment sales
At the beginning of the year there was a lot of concern surrounding rising interest rates’ effect on commercial real estate. As it turned out, this looming fear fueled buyers to get into the market and buy at record pace for retail and multi-family properties. In fact, in 2022, the Central Valley saw record cap rates, sales volume, and transactions, based on data provided by The Visintainer Group and CoStar.
Interest Rates’ Impact on the Market
Interest rates were the main discussion in 2022, so let’s dive deeper into that before reviewing the market data. The 10-year treasury was at 1.50% in January, then slowly climbed to ±1.80% by the end of March. Though not directly correlated with the Federal rate hikes that began in March, investors took notice and the 10-year treasury market shifted quickly — never looking back as it reached 4.20% in October and ending the year in the 3.90% range. For reference, interest rates usually hover around 200-250 basis points above the 10-year treasury. While buyers were able to borrow in the mid-3% range in first quarter of 2022, they found themselves getting quotes around 6.00% in December. This increase played a significant role — higher lending costs forced buyers to pay lower prices, thus increasing cap rates.
Red Hot Multi-Family Market
Apartment complexes came into 2022 as one of the hottest investment sectors and continued to garner attention through the 4th quarter. The largest deal of the year was the sale of Ascent Townhome Apartments, a 248-unit complex in Fresno which sold for $82 million ($330,645 per unit) — the highest sale price ever for our market! We saw the median price per unit eclipse $100,000 for the first time as well in 2022, with it reaching $112,587. The average cap rate dropped below 5.00% for the first time and we saw an impressive $656 million in total sales volume (second only to the $773 million in 2017). There was a total of 119 transactions that surpassed each of the past two years and falls more in line with pre-pandemic activity. Buyers from other markets in California found the Central Valley as a hot bed to invest after skyrocketing prices for apartments in their markets made it difficult to find investments. 49% of the buyers came from Southern California while 26% came from Northern California — totaling 75% of all the buyers in 2022. It was a huge year for apartment sales and it will continue to be one of the most watched sectors in real estate going into 2023.
Retail Investments Reach Historical Highs
The retail investment market did not slow down, even as interest rates increased throughout the year. The largest deal of the year was Monte Vista Crossing, a 467,131 square-foot shopping center in Turlock, that sold for $124 million and 7.49% cap rate. With so much liquidity in the market, and a surplus of all cash buyers, the record numbers poured in. This last year didn’t only see the most transactions ever with 306, but also an astonishing sales volume of $1.881B – surpassing the previous peak in 2015 by $160 million. Along with record transactions and sales volume, the average cap rate dropped below 6.00% for the first time as it was 5.61% in 2022. Multi-tenant retail centers reached some notable milestones — 146 transactions, $1.277 billion in sales volume, and the lowest average cap rate since 2007 at 6.46% for the year. The single tenant market saw the lowest average cap rate drop to 5.04%, the second most historical transactions with 160, and third most volume with $604 million. Until cash dries up and more buyers need loans, the retail market will continue to be highly sought out by investors.