Net Lease Sales Velocity Hits Pandemic High

Single-tenant net leased asset sales velocity hit a new high since the COVID lockdowns began in March, according to The September 2020 NNN Market Intelligence Report Chris Pappas, associate director with Marcus & Millichap’s Net Lease Division.

Total STNL sales rose 20% by 66 transactions between August and September, jumping from 328 to 394. While investors continue to flock to small price-point essential properties, investors showed an interest in tenants (including big box stores) that had previously been lagging due to the uncertain economic COVID landscape. 

“The 20% increase in transactions was substantial,” Pappas says. “We went from 328 to 394, which demonstrates that people are starting to feel more comfortable and people are more willing to be active. They don’t want to miss out on opportunities that are presenting themselves right now.”

Pappas attributes September’s rise in velocity to several factors, including record-low interest rates, heightened institutional activity, and increased risk tolerance as investors more clearly understand the pandemic’s consequences. 

“I think the data shows that there were different assets sold that we haven’t seen before,” Pappas says. 

The STNL tenant preferences were the same as they had been throughout the summer, although each of the top three categories lost market share. 

Quick service restaurants fell 2% from August (25% market share/100 transactions), dollar stores fell 2% (20% market share/78 transactions) and pharmacies fell 3% (13% market share/51 transactions). Pappas says the miscellaneous transactions category, which included big box stores, spiked from 25 transactions in August to 51 transactions in September (13% market share).

As transactions rose, so did total sales volume, reaching $1.6 billion in September, a nearly 13 percent increase over August. The sale of big box transactions pushed the miscellaneous assets category into the top spot for volume with roughly 23 percent of all dollars invested. These high-priced assets, which are leased by tenants such as Academy Sports, Hobby Lobby, Home Depot, and Lowe’s, made up a considerable portion of the miscellaneous transactions. Pharmacies and quick service restaurants attracted the second and third highest amounts of investment, respectively.

Dollar investments spiked in the West, which saw the greatest increase month-over-month from 11 percent to 16 percent of all dollars spent in September, according to Pappas. Transactions in the Texas/Oklahoma region dropped 10% to 14%, which was the largest decline. The most dollars, $433 million, were invested in the South, which gave it a 38% market share and a 1% month-over-month decrease.

Pappas expects more assets to hit the market as the end of the year approaches. “Typically, at the end of the year, there are private owners and businesses that need to unload properties for one reason or another,” he says. “They may have some tax implications that are motivating them to discount pricing, which would encourage a transaction. They may also be afraid of a slowdown in velocity at the beginning of the year, which we typically see in January and February.”