The Real Deal Miami

Lower interest rates spark revival in valuations of strip malls

June 27, 2011 04:11PM

Strip mall valuations have exploded thanks to lower interest rates, according to the Wall Street Journal, but there are still underlying problems in the especially vulnerable sector. The increasingly popular real estate investment trusts that invest in such centers depend upon tenant leasing for cash flows. Strip mall tenants, which the Journal said are comprised heavily of mom-and-pop shops and tend to attract lower-income consumers, are highly dependent on a stronger economy. Moreover, considering the increased use of the Internet for shopping and the still slumping rents paid by new tenants in recent years, perhaps the 45 percent gain in valuations since 2009 is unwarranted. Valuations now sit just 10 percent below 2007 peaks. Though low interest rates remain a grounded reason for the increased valuation, if those rise before the economy becomes stronger, strip malls are likely candidates to crash again, the Journal warned. [WSJ]