In today’s Single Tenant Net Lease Market report, I will be covering the demand and what particular retail sector you can get your
hands on this hot asset. The single tenant net lease property market has be shaping out quite well through 2013 as the continued growth demand for housing by consumers and real estate and capital by investors increases. U.S sales of new homes jumped to 497,000, which is the most we had in over 5 years, a positive sign for the retail sector. We should continue to see this trend as the residential market improves and less uncertainty with government policy.
Investors today are drawn to single tenant net lease because of the low cost of capital and improved retail segment combined with the features of credit-rated tenants and long term leases.
“We continue to see a lack of supply coming online, and there’s a ton of demand for acquisitions, both from traded and non-traded REITs, as well as investors seeking yield replacement,” Joey Agree of Agree Realty Corp.
Single tenant net lease investments had increased to $4.8 billion dollars midway through 2013, which is an increase of over 10 percent year over year. The average cap rate was 6.9 percent and the average price per square foot was $238, according to Real Capital Analytics.
Single tenant net lease properties being so hot that the cat is out the bag now and broad base investors are getting their hands in on the action. The result, a huge supply and demand imbalance. The limited supply and demand will remain a challenge for broad base investors and I anticipate that investors may be forced to modify their strategy and consider geographic areas in non major metro areas along with tenants with shorter lease terms.
Nationally, the retail market vacancy rate decreased from 6.9 to 6.7 percent in second quarter on the strength of more than 23.1 million sq. ft. net absorption, according to CoStar. Rental rates were up 2 cents at the mid-year mark to $14.50 psf. Consumer confidence has also reached its highest level since 2007, according to University of Michigan Institute of Social Research, Richard Curtin.
“There’s a very positive mood in the retailer environment today,” said Mark Zalatoris of Inland Real Estate Corp. “Our leasing people come back from meetings just saying they’re so enthused about the retailers’ desire to expand store counts.”
What particular sectors of single tenant net lease has seen improvement? According to NDP Group a consumer market research firm, the total volume of restaurants in the United States increased by 0.5 percent in 2013, which is 3,045 units in the year. Quick-service restaurants rose by 1 percent to 328,162 units. Convenience stores experienced a 2 percent gain in consumer traffic, which led to a year-over-year increase of nearly 6 percent in dollars, reported NPD in June.
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Dwaine Clarke is a published author and founder of Clarke & Tinker Net Leased Property Group, a commercial real estate sales and advisory firm located in Connecticut. Connect with Dwaine on Twitter and Linkedin