Retail Expansion Fueling Demand For New Net Lease Assets

Scattered retail expansion in Q2 of this year continued due to low interest rates and persistent consumer demand. Nationally, retailers continue to expand, re-tool their business models and test new markets. This, according to at least one market researcher, has added up to increasing demand for new-construction net lease assets that are in turn commanding premium prices due to the scarcity of these types of opportunities.

Lanie Rea, director of research for Chicago-based Stan Johnson Company, a firm specialized on single-tenant net lease properties,  says in NREI that the Southeast is currently leading the nation in 4 million sq. ft. of net lease new construction in the pipeline. Apart from the West, the remaining regions are holding strong with an roughly 2.5 to 3.5 million sq. ft coming online.

Cap Rates Staying Low

Cap rates in Q2 of 2015 for single-tenant net least retail have remained unchanged at their historically low rate of 6.4 percent, according to research firm The Boulder Group. The boutique investment real estate firm that specializes in single tenant net lease properties reported that the overall supply of net lease assets was up over 20% in Q2 with retail assets leading all real estate sectors at 23 percent.

Reportedly, some of the rapid retail growth is stemming from drugstores, grocery stores, restaurants and discount stores including Dunkin’ Donuts, Walgreens and Dollar General . According to Crittendon Reseach, Inc., a national analysis and forecasting firm also cited aggressive growth in 2015 especially from retailers such as Dick’s Sporting Goods, Aldi, GNC, Advance Auto Parts and others.

According to industry expert Jonathan Hipp, President and CEO of the Calkain Group and author of  “The Little Book of Triple Net Lease Investing”,  the most active states for net lease activity from Q1 of 2015 were 1. California, 2. North Carolina & tied for 3. Florida/Arizona. The figures for Q2 haven’t been published yet, but based on the flurry of retail growth we’re waiting to see where this upward trend leads.

CCIM reports in their July-August 2015 issue of CIRE magazine that many factors including seller hesitation will help to limit the amount of available inventory in the retail net least market.  See here for their synopsis.


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