Demand for Necessity Retail Will Boost STNL In 2023

The outlook for the single-tenant net lease sector remains strong going forward as household demand for necessity retail shows resiliency and retail sales data shows consumers are continuing to pour cash into categories like groceries, personal care and wellness items.

“This behavior has the potential to establish record monthly sales totals across these necessity-based categories throughout the year, which will have positive implications for a single-tenant sector already on solid footing,” analysts note in a recent Marcus & Millichap report.

As 2023 began, availability in the STNL sector was “historically tight” after an eight-quarter stretch that saw tenants absorb more than 100 million square feet. Researchers say “widespread demand” exists among grocers, drug stores and low-cost restaurant chains. But the approximately 8.8 million square feet of single-tenant space underway at the onset of 2023 equated to just 0.1 percent of existing stock, and the Marcus & Millichap report says “restrained development indicates single-tenant availability may hold firm or compress over the near term if additional vendors grow their businesses and backfill available space.”

All of this bodes well for investor confidence, as core spending metrics bolster the stability of net-lease retail ownership. Marcus & Millichap analysts say “buyers seeking long-term cash flow and less management-intensive properties may capitalize on high pricing in other sectors and move equity into single-tenant assets with high-credit tenants.” Sales prices for average STNL properties shave risen about 16% over the last five years, and high-credit tenants and buildings with long term leases in place remain investor favorites.