Multi-Tenant Retail Has Strongest Quarter in Three Years

The multi-tenant retail sector swung back into investor favor at the end of 2021, recording a near record of $22.5 billion in sales volume nationally, according to research from Stan Johnson Company. The quarter was the strongest in three years and the second best on record.

Fourth quarter sales were up 44% from the previous quarter and 142% since the fourth quarter 2020. Annual sales volume was $54.7 billion, not a record but a significant 97% year-over-year jump, illustrating investor confidence in the asset class.

REITs are dominating the investment activity, serving as the buyers in 84% of multi-tenant retail sales. This isn’t a new trend. REITs have been increasing allocation to multi-tenant retail for the last several years. In 2018, they represented only 3% of the multi-tenants buyer pool. By 2021, they made up more than a quarter of the buyer pool in the US.

Stan Johnson Company expects the momentum to carry into 2022, but also see supply shortages for the asset class; however, multi-tenant cap rates are not expected to compress as they have in other net lease asset classes. Multi-tenant cap rates are averaging 6.8% and have only fluctuated about 10 basis points in the last three years. Cap rates for multi-tenant product is region-specific and can vary widely. At present, only the Northeast region is reporting cap rates lower than 6%.

While multi-tenant retail investment rebounded in the second half of 2021, single-tenant net lease has been the favored by investors throughout the duration of the pandemic. Last year, single-tenant sales volumes reached $36.3 billion, led by industrial acquisitions, which accounted for $18.3 billion. Rexford Industrial is a great example. The firm has been actively acquiring single-tenant industrial product in Southern California. At the end of the year, it acquired 20481 Crescent Bay Drive, a 88,355-square-foot, single-tenant industrial asset in Lake Forest for $19.5 million; 34 El Encanto Road, 64,368 square foot, single tenant building is situated on 3.8 acres of land in the City of Industry, for $10.7 million; and 3512 Marlay Avenue 199,363 square foot, modern, single tenant industrial warehouse on 10.1 acres of land in Fontana for $51.0 million.

Single-tenant retail properties actually underperformed compared to multi-tenant retail, accounting for only $8.7 billion last year. Still the later is a 155% increase in sales activity year-over-year.

Both multi-tenant retail and single-tenant net lease were on track to have a record-breaking year. By the third quarter, multi-tenant retail sales volume hit $14.3 billion, up 39% from the second quarter, already surpassing 2020 totals. Single tenant net lease sales volume hit $20.7 billion, enjoying its sixth strongest quarter on record in Q3.