High-Flying Single-Tenant Sector Expected to Extend Its Performance

The investment prospect continues to look favorable for the single-tenant sector, which has proven to be “extremely resilient,” according to a report from Marcus & Millichap as it enters 2024 amid the likelihood of cuts in interest rates.

Currently, vacancy remains tight at 4.3 percent, tying 2018’s record low, with the mean asking rent at an all-time high.

About half of the nation’s 50 major retail markets exhibit sub-4 percent vacancy and 10 of those metros had record-low vacancy — featuring Sun Belt markets, Chicago, Cincinnati, and Philadelphia.

Marcus & Millichap said the broad demand has the sector “well equipped to handle potential headwinds.”

Given the fundamentals, an uptick in construction “would appear warranted, but the segment will record a third straight year of minimal new supply pressure,” according to the report.

For January, the active pipeline represents just 0.3 percent of existing stock. Marcus & Millichap said that an increase in trading velocity and sales volume — including 1031 exchange activity — is plausible.

It cited single-tenant borrowers, and local and regional banks as primary financing resources; “however, the sector’s strong fundamentals may support a more diverse lending platform,” said the report.

Meanwhile, restaurant and bar sales accounted for a record share of core retail sales last year, at nearly 18 percent, another reason for demand optimism.

Quick service and fast casual chains outpaced sit-down and fine-dining franchises in annual sales increases a dynamic the report suggests consumers value the convenience associated with fast food chains, despite the price index for limited-service meals rising at an annual pace well above overall inflation.

Thereby, fast food vacancy ended 2023 at an extraordinary 1.3 percent. Jersey Mike’s and Chipotle each plan to open more than 300 locations, with Raising Cane’s and Bojangles eying robust expansions as well.

The drive-thru coffee segment will also grow as Dutch Bros and 7 Brew Coffee each open roughly 150 stores, and McDonald’s launches CosMc’s, said the report.

Net Lease Spring

Held April 16-17 in NYC, Net Lease Spring will bring together hundreds of dealmakers from the nation’s top firms. This year’s program will feature 5.5 hours of face-to-face networking and over 5 hours of content focused on micro and macro trends for 2024, being resilient through market volatility, how to serve your corporate tenant clients and much more! Learn more or register here.