One metric that Calkain uses to partially measure supply in the market is the change in average lease years remaining at the time of sale on a quarter-by-quarter basis. An increase means the mix of properties being sold is newer, which could be caused by several things, however in our experience it's primarily due to new construction.
The chart below shows changes in the average number of lease years remaining at the time of sale by tenant category between Q1 and Q2 2015. Across all property types, the supply of newer properties appears to be flat, increasing a sparse +0.1 years. Certain sectors, however, experienced rapid change. Dollar Stores overall increased +0.9 years, and Dollar Generals specifically increased +1.5 years, driven by a surge in newly constructed properties coming to market. Pharmacies were down -1.5 years as new store development slowed for CVS and Walgreens and older Rite Aids comprised a larger portion of the sector.
Banks as a category experienced the largest change, +3.2 years. However the number of banks trading is usually a small portion of the overall market and therefore as a category it is more sensitive to any changes in the demographic makeup of the properties trading in that vertical. We haven't seen a large expansion in new locations for any major bank, suggesting this change is being driven by existing properties coming to market for the first time.
More detailed analysis for pricing and supply trends will be available in our forthcoming 2Q15 Cap Rate Report.
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Jonathan Hipp
Jonathan Hipp began his career in real estate over 25 years ago. In his early years as a broker, he ventured into the net lease industry and quickly began leading the US net lease market, closing over $3 billion in transactions. In 2005, Jon founded Calkain Companies, a company focused solely on net lease investment services. As President and CEO, he has been instrumental in building the firm into one of the leading Net Lease real estate companies, transacting over $12 billion of net lease deal volume over the past 13 years. He has expanded Calkain’s services to include brokerage, advisory, asset management, capital markets, and industry research. He has become a well-known resource, panelist, and speaker at various Net Lease and Industry conferences and is a regular contributor to GlobeSt.com on real estate trends. In June 2015, Jon’s passion for the real estate business was again recognized as he was nominated for the Top Real Estate Player in the DC area by SmartCEO magazine.
