Consumer Confidence has been surging, hitting 117.9 on their index in May of 2017, and the National Federation of Independent Business' (NFIB) Small Business Economic Trends index reports that business confidence is at an incredible high. These bright outlooks sit in stark contrast to the weak GDP growth of 1.2% observed in Q1 2017. After a quarter of weak growth and optimistic outlooks many economic forecasters expect the second quarter growth to be large, possibly in the range of 4 percent.
A Federal Reserve Bank survey of senior loan officers at major US banks revealed lending standards across commercial real estate tightened during the first quarter. The respondents also indicated that there is shrinking tolerance for risk. Even with credit markets tightening the shock to the Single Tenant Net Lease (STNL) segment will be somewhat smaller than elsewhere in the industry. STNL area has been a favored area to deploy capital in the past.
The net lease markets have been very steady over the last 12 months. From Q1 of 2016 to Q1 of 2017, the cap rate has moved just 13 basis points. This is despite upward movements in interest rates which followed the 2016 election. It's also worth mentioning that STNL tenants have largely been insulated from the almost daily news of retailers going bankrupt or announcing major store closures. The distinguishing characteristics of these retailers is the real estate format they do business in (inline vs freestanding) and the business segments they operate like clothing, and consumer goods versus STNL tenants which are in fast food, banking, medical etc… To put it another way, most STNL tenants are much more insulated from the “Amazon effect.” This has led at least partially to the continued high demand for this type of investment real estate.
While there is uncertainty in the world, the future looks bright. Even with the June increase, the 10 Year T-Bill has dipped and investor activity has significantly increased over the first quarter levels. With that said, we expect positive activity through year end. To read Calkain's latest Net Lease Economic Report, click here.
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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.
