A ‘Resilient’ Net-Lease Retail Sector
As pandemic-related economic uncertainty loomed last year, investors looked to single-tenant net-leased properties for financial security and less volatility, said Colliers International, Toronto.
“Historically, net-lease assets have outperformed other investments during turbulent economic times, particularly those occupied by essential service-providing investment-grade tenants,” Colliers National Director of Retail Services Anjee Solanki said in a new report, The Resiliency of Single Tenant Net Lease Retail.
Solanki noted single-tenant net-lease property operating expenses are covered by the tenant, so STNL investors know they have a reliable income stream. “Thus, while 2020 was a year unlike any other, the single-tenant net lease market held up remarkably well,” she said.
Investment activity fell for all property types last year as investors waited for clarity during the COVID outbreak. But the single-tenant net-lease market outperformed other traditional property sectors. A “flurry” of net-lease retail activity in the fourth quarter pushed transactions to a new record high last year, though smaller dollar value deals meant total sales volume fell 7.7 percent to $6 billion, Colliers said.
Cap rates across the five net lease retail sectors, casual restaurants, quick-service restaurants, drug stores, dollar stores and auto parts stores, remained relatively stable throughout the year, increasing just four basis points year-over-year, the report said.
Solanki said Colliers expects the retail industry to benefit as consumers release their pent-up demand for shopping, dining, entertainment and traveling as COVID vaccinations increase. “We expect to see a moderate uptick in consumer activity toward the latter half of the second quarter, which will carry forward well into 2022,” she said. “Investment activity is anticipated to follow suit as we look for the last half of 2021 to be robust.”
Deal volume will likely remain active as the gap between buyer and seller expectations narrows, the report said. “Additional cap rate compression can be expected, but it will be dependent on the quality of tenant, building location and industry sector,” Solanki said.
