When delving into discussions about the real estate market, it’s crucial to specify the sector under consideration. Whether it’s retail, office, self-storage, industrial, medical office, multifamily, or residential, each segment performs differently based on various factors within their respective industries.
Today, our focus is on the retail sector in Long Beach, examining how it compares year-over-year. The retail market faced challenges during the COVID-19 pandemic, experiencing negative impacts as many operators had to close their doors, and owners struggled to collect rents. Additionally, interest rates are currently at an all-time high, significantly affecting the market. Lower interest rates benefit both buyers and sellers, but the current high rates have led to a softening of the market.
Investors are keen on finding good deals, but the high cost of capital makes it challenging for deals to underwrite. Consequently, many buyers are adopting a wait-and-see approach, hoping for prices to drop. This situation has shifted the dynamics, and we can now confidently say that we are in a buyer’s market.
In 2022, there were a total of 73 retail transactions in Long Beach, amounting to a sales volume of $136,228,542. In contrast, 2023 witnessed 57 transactions, reflecting a 28% decrease, with an overall sales volume of $117,105,000.
An essential metric to consider is the average price per square foot. In 2022, the price per square foot was $435, while in 2023, it dropped to $339, marking a 28% decrease. This decline is not surprising, given the significant impact of interest rates on overall sales and pricing.
Another benchmark to assess the market is the capitalization rate (cap rate). In 2022, the cap rate for retail buildings was 5.48%. In 2023, it slightly adjusted to 5.68%, a modest 20 basis points increase. Although not substantial, it has been enough to soften sales prices.
Sellers are often eager to know how long it will take to sell their property, measured in Days on Market (DOM). In 2022, properties were on the market for an average of 8.5 months (approximately 255 days). Surprisingly, in 2023, this reduced to 5.1 months (150 days), indicating that retail properties sold faster than in the previous year. This may be attributed to investors taking a cautious approach post-COVID and waiting a bit longer before making purchases. Nevertheless, a shorter marketing period is positive news for property owners.
In summary, sales volume and prices have both declined by 28%, influenced significantly by high-interest rates. While the cap rate rose by only 20 basis points, sellers are advised to price their properties appropriately based on current sales comparables. For buyers, this presents an excellent opportunity to enter the market, as motivated sellers are more likely to consider offers below the asking price.
For more information on commercial real estate, feel free to reach out to Juan Huizar.
