Every property type has its own story, supported by data. For the overall classification of single-tenant net lease (STNL), Northmarq has data through the third quarter of 2023. The past is not necessarily a predictor of the future, otherwise nothing would ever decline or improve.
These overall trends (with more segmented data to come over future weeks) show how markets have developed. That doesn’t mean, whether for better or worse, they will continue their course. But ignoring what has happened is more dangerous than assuming it represents an unchangeable future.
Generally, the STNL market has been downbeat. Investment sales activity has seen declines in each of the last seven quarters. The all-time high at the end of 2021 has dropped by more than 78%. Rising interest rates hit many hard with a total sales volume for the first nine months of only $31.7 billion. With the Federal Reserve indicating potential rate cuts next year at its December meeting, an end-year rally seems unlikely. Why purchase today when you think you might have a better rate in six months? And why try to jam through a purchase at the end of the year when it’s hard to reach people and there’s no clear financial advantage in closing a deal right now?
However, things are also not that bad. Northmarq noted that if you eliminate the sky-high 2021 fourth quarter activity, then 2023 sales activity “has been on par with historical averages” in Q3 saw some uptick. “Additionally, the future of the industrial sector remains bright, even with reduced sales in recent quarters.” Retail brands are expanding and there’s increasing need for last-mile distribution points, food processing, and cold storage.
“Lastly, each reporting period that witnesses below-average investment activity adds to the growing pent-up demand that will positively influence sales volumes in future years,” they noted. “The story we like to tell about investment activity in 24 to 36 months, for example, is very likely to have a different narrative.”
However, as Northmarq said and as GlobeSt.com has reported for more than a year, there is the continuing gap between buyers and sellers. The former thinks that prices should be cheaper because of financing costs and the difficulty in making plans work. The latter remembers yesterday’s prices and want them. It’s a chicken-and-egg conundrum. The deals must start to happen to begin price discovery, but too many on both sides of trades want the price discovery before dealing.