Multi-tenant sales activity continued a steady 3-year trend in 2013, averaging approximately $500 million in activity, with a sharp spike in the number of sales and total consideration off very slightly. The divergence between sales volume and consideration is explained by a shortage of available big-box and grocery-anchored centers, which are seen as attractive “window dressing” for national portfolios and are typically not available to single-property buyers. Fewer portfolios traded hands in 2013, compared to previous years, with smaller unanchored retail centers picking up the slack in a big way.

Single-tenant sales volume also rose in 2013 along with total consideration; both reaching levels not seen in San Diego County since 2007. However, total single-tenant consideration was skewed upwards by two large LA Fitness transactions totaling $31 million. Outside of these two deals, the average San Diego single-tenant retail property sold for $2.4 million. All-cash buyers were prominent in the market as stable economic conditions and low interest rates convinced investors to put capital back to work.


National retail chains appeared to be focused on expansion in 2013 and were able to exercise considerable leverage, with little competition from new retailers entering the market.  Traditional brick-and-mortar retailers have also begun forays into internet sales as consumers have shown a willingness to shop online for more categories of products; with fashion apparel and gourmet foods joining books, music and video as internet-compatible offerings. An inverse trend can also be seen as internet retailers seek to establish a physical presence in local markets through partnerships with well-known retailers.


Steady improvement in the economy throughout 2013 encouraged lenders to push LTV-ratios on non-recourse loans and bridge/mezzanine financing, with banks and debt funds leading the charge. 40 conduit loans were originated last year, a historically large number, and “B-piece” buyers are adding top liquidity to the market. Lenders across the board are eager to put capital back to work and the Fed policy of slowly tapering bond-buying programs has yet to make a significant impact.


Activity is likely to remain strong in 2014 due to the combined forces of rising interest rates and maturing conduit loans. Owners will have to decide to sell or to add capital in order to maintain acceptable LTV ratios; not typically a desirable option. Sale timing will be influenced by rising interest rates, which are projected to be 25-50 basis points higher in 12-to-18 months, making the decision to sell attractive.