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Net Lease Retail Has Wind In Its Sails

CALABASAS, CA—Tenant demand for space in the sector has exceeded new supply by an average of 16 million square feet per year since 2010, says Marcus & Millichap.

By Paul Bubny | paulbubny | Updated on April 14, 2017

Exterior of Dollar General store The dollar-store segment is expected to lead the way with new deliveries this year, says Marcus & Millichap.

CALABASAS, CA—There’s a little bearishness mixed in with the bullish outlook for net lease retail, although it’s not due to any intrinsic weaknesses in the sector itself. Rather, it’s a byproduct of the same investor caution that has tempered investment sales across commercial real estate generally.

“The post-election interest rate surge forced many investors to reconsider their strategies, though the limited use of leverage by net-leased investors tempered the pullback in transactions,” according to Marcus & Millichap’s latest report on net lease retail. Yet the firm notes that “the pronounced downward pressure on net-leased asset yields during the cycle has flattened in response to higher interest rates.” Furthermore, upward pressure on cap rates is likely to be minimized by the popularity of net lease retail properties, “particularly among investors exchanging out of more-management-intensive assets.”

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