5 Retail Properties for Less Than $2.5M in Promising Markets

Last week, LoopNet showed you the best markets to buy retail properties priced under $2.5 million.

The 10 markets identified by data from CoStar, the publisher of LoopNet, all include growing customer bases and buying power, while maintaining significant retail property discounts compared to the national average. Many of the featured markets are in the Midwest and the Carolinas.

But what type of retail property does $2.5 million actually buy you in Minneapolis, or Greenville, South Carolina?

To answer that question, LoopNet put together a sampling of retail properties in those areas currently advertised on the site for less than $2.5 million. The listings below include a mix of stable assets that feature long-term leases with credit-worthy national retailers such as Starbucks, as well as more speculative redevelopment opportunities that offer more potential upside.

140 Resource Center Parkway, Birmingham, Alabama

This nearly 13,000-square-foot vacant building was custom-built in 2006 as an outdoors and camping store, but listing agent Randy Thomas of NAI Chase Commercial told LoopNet the property will have a new life as a “pet hotel.”

At least, that’s the business under contract to buy the property as soon as Nov. 1.

“Proximity to [residential] rooftops, that’s the buyer’s number one concern,” Thomas said.

In addition to residential neighborhoods full of pets, this property is also located off U.S. Highway 280 and is near a hospital, as well as a Target, Nordstrom Rack and other national retailers.

While this particular property is already under contract, it’s a strong example showcasing the Birmingham retail market’s demand. Birmingham’s steady population growth, as well as tightening retail vacancy rates, is leading to a flurry of retail properties trading in the past six months, Thomas said. Especially in the $2 million range.

The retail vacancy rate in Birmingham is 3.5%, with the retail market sale price averaging $145 per square foot, according to CoStar. This property is listed at $179 per square foot, still much lower than the national average of nearly $240 per square foot.

“There's a lot of money in the [Birmingham] market with the large investors, that's obvious,” Thomas said. “[But] the exact same scenario is happening with the smaller investor. That $2 million range, give or take, is a perfect scenario for them. They can go in, make an investment or do a lot of 1031 exchanges.”

A 1031 exchange is a provision in the tax code allowing sellers of commercial real estate to defer real estate taxes if they reinvest the sale proceeds and taxes from that sale into a similar property.

4611 Excelsior Blvd, Saint Louis Park, Minnesota

The less risk-averse investor might consider a freestanding retail building in the Minneapolis suburbs leased to national fitness franchise CorePower Yoga through 2033.

The property is reporting a net operating income (NOI) of more than $136,000 per year, with 3% annual rent increases on March 1 of each year, according to the offering memorandum. A purchase at the current list price would result in a 5.5% cap rate.

“It’s a corporate lease, which is great,” said Ross Hedlund of Frauenshuh Commercial Real Estate, which is handling the sale. “Solid credit and it’s on a road that has no vacancies ever.”

Minneapolis-St. Paul is the largest retail market in LoopNet’s recent top 10 list, boasting a low 2.3% unemployment rate and the highest median household income in the Midwest at $94,000. Minneapolis residents also enjoy a low cost of living relative to top-tier cities, leading to more disposable income in the Twin Cities’ established retail market.

The retail vacancy rate in the Minneapolis market is 3.1%, and CoStar Analytics projects 2.8% annual rent growth for the next three years.

2130 Hilliard Rome Rd, Hilliard, Ohio

Here is a ground lease committed long-term to a drive-thru KeyBank in a highly visible retail corridor outside Columbus, Ohio.

The property, with a current a NOI of more than $82,000 per year, would yield a 6% cap rate at its listing price of $400 per square foot ($1,375,000 total). KeyBank recently exercised the first of three 5-year renewal options at the property. There are over four years remaining in the current term, with 2% annual increases, according to the offering memorandum. More than 24,000 vehicles per day drive by the bank, which is located near a Target, Chick-Fil-A and other national retailers.

Cleveland-based KeyBank is the 24th largest bank chain in the United States and is a Fortune 500 company.

Columbus is another strong retail market reporting robust rent growth, tightening vacancy rates and sale price discounts compared to the national average. Hilliard is an affluent suburb of Columbus, reporting a median household income of more than $102,000 per year.

104 Mauldin Road, Greenville, South Carolina

For the investor looking for a value-add opportunity, this property is a 65% leased pair of retail buildings in Greenville, South Carolina. One property is a strip center, while the other next door is occupied by a furniture consignment store. They combine for nearly 27,000 square feet and would sell for $93 per square foot at the list price.

The vacancies and leases nearing expiration present an opportunity for an investor to bring in new tenants paying higher rent, or to renew leases at higher rates. After growing 8.2% over the past 12 months, CoStar projects retail rents in the Greenville market will continue to rise 3% per year for the next three years. A purchase at 104 Mauldin Road would produce a 5.4% cap rate at its current list price.

Greenville sits roughly halfway between Atlanta and Charlotte, North Carolina, on Interstate 85, and the property had more than 26,000 vehicles pass by per day on Mauldin Road last year, according to the offering memorandum. The metro’s population recently surpassed 1 million, raising its profile with national and upscale retailers as it attracts new residents.

2941 Town Center Drive, Hope Mills, North Carolina

Looking for a 1031 exchange deal? Here’s your chance to buy a newly-built drive-thru Starbucks in the Fayetteville, North Carolina, market.

Starbucks used to have a location inside the Harris Teeter grocery store on the same lot, until strong sales convinced the retailer to build a freestanding location outside. Starbucks signed a 10-year, double-net lease expected to begin in December at the drive-thru building, with a 10% rent increase (to $121,000 a year) in year six of the term. There are five-year extension options with rent increases beginning after year 10 of the lease, potentially keeping Starbucks at the property for 40 years. Starbucks has no early termination clause.

The Starbucks is also located in front of a new 288-unit multifamily project and across the street from a high school and elementary school with more than 3,000 students combined. Over 17,000 vehicles per day pass the drive-thru Starbucks location, according to the offering memorandum.

Located along Interstate 95, Fayetteville is a growing metropolitan area that enjoys economic stability thanks to the presence of military base Fort Bragg, and relative affordability to other Sun Belt cities. It also has high medium household income growth, increasing nearly 11% in the area over the past year. A purchase at the current list price of $978 per square foot ($2,444,000 total) would yield a 4.5% cap rate, and CoStar Analytics projects 2.7% annual retail rent growth in the area over the next three years.