"Opportunistic buyers are starting to modify their investment strategies," notes John Leonard, regional manager of the Encino, CA-based investment services and brokerage company. "The north metro area will continue to receive the majority of investor attention in 2004, but the south metro area--south of Interstate 20--will receive additional interest due to favorable conditions."
Those conditions include more affordable prices and higher returns than north metro cities. For example, Leonard says in 2003 the median price for single-tenant properties in the southern metro area was $201 per sf compared with $293 per sf in the northern suburbs. The average cap rate for the single-tenant product in the southern suburbs was 50 basis points higher, at 8.8%.
Leonard is confident "the southern metro area's demographics will encourage more development and investor interest." He says the median household income will continue to rise, as residents discover the area's more affordable home prices and shorter commute times to Downtown and Hartsfield-Jackson Atlanta International Airport.
The Marcus & Millichap study expects the single-tenant market to remain robust in 2004. "Increased investor interest in the sector is likely to stimulate multiple bids for highly south-after properties," Leonard says. "Many buyers will attempt to purchase newer construction, especially properties occupied by a credit tenant, which is likely to push cap rates down further."
Leonard says many of these buildings are providing returns in the low to mid-7% range. In 2003, dollar volume surpassed 2002's level of $244 million, as numerous investors purchased drugstores and fast-food restaurants, "which typically trade at above-average prices," the broker says.
"While pharmacies will remain in high demand, as many investors seek steady returns, buyers are likely to face higher prices and lower returns as competition increases in this sector," Leonard says.
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