Retail sector ranks last as investment category.

Concerns over sluggish consumer spending, overbuilding and overpricing were cited as key reasons why the retail sector ranked at the bottom of major commercial real estate investment property types, according to data and analysis released in the Third Quarter 2006 RERC/CCIM Investment Trends Quarterly, a national analysis on commercial real estate and related economic activity.

The retail sector, comprised of regional malls, power centers and neighborhood/ community centers, earned a 4.6 average rating on a 10-point scale following a survey of institutional investor respondents by Real Estate Research Corporation.

Ratings for these retail sub sectors declined by 40 to 90 basis points below first quarter 2006 figures.

Vacancy rates climbed in the April-to-June period to 8.5% from the previous 7.6%. "In part, this is due to the slowdown in retail sales in some areas because of an increase in housing costs, as well as the rising cost of fuel," the report stated. "With these factors not expected to improve greatly, the retail sector is likely to see continuing availability increases."

In second quarter, shopping centers captured 17.9% of all transactions, slightly higher than 16% in the previous quarter. The average price per square-foot dropped to $194 versus $208 in the January-to-March period, for a decline of 9.3%.

"As one of the first sectors to see strong improvement, retail is now becoming one of the first to slow down," the report noted.

Investment conditions for industrial warehouses and apartments were more favorable. The institutional investor survey rated these property types at 6.3, the highest among major commercial real estate sectors. Still, the industrial warehouse rating was lower than the previous quarter's 7.0 rating, and apartments dipped slightly from early 2006.

The Third Quarter RERC/CCIM Investment Trends Quarterly also revealed:

* The West Region of the nation edged out the South Region in terms of percentage of completed transactions by 31.6% versus 29.2%. The East and Midwest had 25.4% and 14.2%, respectively.

* Institutional level required going-in and terminal capitalization rates are up for all property types, reflecting the higher interest rate environment. The upward pressures on capitalization rates demonstrates that higher risk is present, as well as the fact that there is still plenty of capital in the market.

* The increase in capitalization rates also is reflective of investment environment where alternatives are not all that desirable. According to the report, RERC's institutional survey respondents rates stocks slightly higher than commercial real estate as an investment option. Cash earns third-place honors, and bonds are rated fourth.

Transaction data in the Third Quarter RERC/CCIM Investment Trends Quarterly was based on a quarterly total of 6,202 closed transactions with a value of $138 billion. The sales data were provided by CCIM members, RERC contacts in the marketplace, and gathered through public information sources.