- There is more certainty in the retail NNN sector versus three months ago. We are starting to see the light at the end of the tunnel.
- We are still seeing an over supply of retail assets in FL, TX and other hot markets. As an example, SBUX had 18 deals on the market two years ago, versus 150+ SBUX’s on the market today.
- Developers are happy to get a 150-basis point return (bps) on cost (ROC) today versus 200-basis point ROC pre-covid or 400-bps ROC two or three decades ago.
- Healthcare asset with 15-year NNN lease at $850,000 per year may be harder to sell than a 10-year term NN deal of $267,000 per year.
- 15-year NNN leases are becoming the standard.
- Certain tenants may experience a lift in 5-15 basis points in the next 3 months.
- Every investor/landlord is driving for a longer-term NNN lease structure over a shorter lease term with landlord responsibilities.
- Decrease in asset supply must continue to stabilize the market.
- If the interest rates come down, cap rate of the asset will also go down, since borrowing costs are lower.
- A recession will not hurt the retail/net lease world sector as much as an increase in interest rates, because money becomes more expensive to borrow.
- Currently, most 1031 retail NNN buyers are land, industrial, and agricultural investors, versus multifamily investors who used to make up 75-80% of the 1031 pool.
- As a developer, it is important to pursue deals with fewer retailers that are growing. Most important is having a corporate guarantee on the lease. Think narrow at this stage, not wide.
7-Eleven’s Average NOI: $350,224 I Average Cap Rate, Jan. 2024: 4.99%
Wawa’s Average NOI: $285,063 I Average Cap Rate, Jan. 2024: 4.77%
SBUX’s Average NOI: $144,647 I Average Cap Rate, Jan. 2024: 5.40%
Dutch Bros’ Average NOI: $110,145 I Average Cap Rate, Jan. 2024: 5.8%
Chipotle’s Average NOI: $144,098 I Average Cap Rate, Jan. 2024: 4.86%
CFA’s Average NOI: $204,787 I Average Cap Rate, Jan. 2024: 4.15%
Popeyes’ Average NOI: $147,164 I Average Cap Rate, Jan. 2024: 5.70%
Source: “On Market Tenant Overview,” Yurcas, Aicale, Forsyth, Crowle Team, Cushman and Wakefield (February 2024)