Various reports targeting the single-tenant net lease (STNL) arena highlighted two themes in Q1 2023. Firstly, cap rates did increase due to higher interest rates and negative leverage for most assets. Secondly, while transactions declined during this period, investors still showed strong interest in the sector.
Boulder Group’s National Net Lease Report stated that fewer properties were available for sale as sellers removed their assets from the market. Marcus & Millichap Single-Tenant Net Lease Retail report analysts agreed with this sentiment and noted that capital costs required buyers to take on less leverage when investing in STNL properties. Avison Young’s Cap Rate Report also found that cap rates remained relatively unchanged despite macroeconomic uncertainty impacting other areas of commercial real estate (CRE).
CBRE U.S.’s Investment Q1 2023 Report predicted a quicker stabilization of pricing compared to broader CRE markets due to STNL’s lower risk profile; private buyers have been identified as largest group investing here while institutional investors are eyeing opportunities with large amounts of dry powder they need deploy soonest possible time frame . Marcus & Millichap analysts believe tight labor market expectations along with low vacancy will continue attracting active buyers into net-lease investments whereas Boulder Group researchers cautioned until spread between borrowing costs and cap rates decrease transaction volume could remain impacted by 1031 exchange buyer pool being smaller than historical standards but many sales driven by all cash or low leveraged 1031 exchanges.. Finally Avison Young concluded remainder year may be problematic overall CRE transactions however STNL should remain safe haven for investors looking at long term returns on investment .
