Shopping centre cap rates converge

09-11-2006

A comparison between the capitalization (cap) rates of regional, community, neighbourhood and convenience shopping centres in 1989 and 2006, indicates a decline in the margin between these cap rates.

In 1998 the difference between the (small) convenience and (large) regional centres was about 4 percentage points, but today this spread has narrowed to about 2. The most plausible explanation for this is the increased presence of aggressive private investors and (specifically) syndicators in the small-shopping-centre market in the wake of the sharp decline in interest rates until mid-2006, says Erwin Rode, CEO of Rode & Associates.