Investors Wary of Power Centers


Institutional investors feel cautious about acquiring power centers, presumably because of lease-up risks involved, according to the Winter 2013 report from the Real Estate Research Corp. (RERC), a registered investment advisor focusing on commercial real estate.

RERC reports that in the fourth quarter of 2012, the investors it surveyed required average pre-tax yields of 7.3 percent to 9.5 percent for power center properties, while required yields for all retail properties averaged 8 percent. The average going-in cap rate for all retail assets was 6.7 percent.

Survey respondents estimated that lease renewal probability at power centers in the current environment would be approximately 66.1 percent, below lease renewal probability for regional malls (69.1 percent) and neighborhood/community centers (67.5 percent). They also expected that vacant power center spaces would take the longest to re-lease, with an expected average of 8.4 months vs. 6.7 months for regional malls and 7.7 months for neighborhood/community centers.


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