A second consecutive yr of report gross sales had some bullish on the prospects of single tenant web lease (STNL). The sentiment was underscored by a powerful first half of 2022 which noticed the asset class hit an all-time excessive of $40.1 billion in funding gross sales. However, as Colliers’ mid-year report discovered, causes for concern abound. The change has a supply acquainted to buyers, says Aaron Jodka, the corporate’s director of analysis, US Capital Markets.
“The results of elevated borrowing prices started to indicate within the information,” stated Jodka. “What turned clear was that STNL gross sales exercise from the primary to second quarter confirmed indicators of softening, with quantity declining throughout all three asset courses when in comparison with the opening quarter and yr over yr. We anticipate [higher capital costs] to stay a foremost consider market exercise by way of the rest of 2022 and into 2023. Re-trades are additionally commonplace immediately.”
After a primary half that introduced a 12% enhance from the earlier, report yr, Colliers reported gross sales quantity within the second quarter fell 35% from the opening three months of 2022 and 17% yr over yr. Additionally, deal depend was down 42% in comparison with 2021.
Not surprisingly, STNL buyers reliant on debt are dealing with the most important challenges out there as elevated rates of interest have squeezed margins. Patrons may even discover themselves in a unfavorable leverage place in some circumstances when belongings commerce at low cap charges. In consequence, money patrons are benefitting from much less competitors than lately. Jodka provides that 1031 change non-public buyers are nonetheless energetic given their tight timeline wherein to redeploy capital.
Industrial Energy
In a broader, multi-year sector change, Colliers stories that STNL buyers proceed to pivot capital to the economic asset class. Within the first half of 2022, 52% of all STNL quantity was industrial-driven, a considerable change from the 10-year common of 40% for the asset class.
“In the present day’s buyers are in search of large lease upside – industrial patrons are looking for short-term leased belongings to get to the lease roll and mark-to-market beneath market rents,” stated Jodka, sharing a current deal instance the place a lower than 250,000-square-foot industrial property with a powerful credit score tenant in a distinguished submarket attracted a strategic core investor keen to pay a record-setting worth. “Lease development has additionally been substantial, significantly in supply-constrained markets, providing long-term worth upside.”
Regardless of the present difficult capital market surroundings, the STNL sector will proceed to supply main core benefits, together with predictable and long-term money stream and minimal landlord tasks. Retail product has proven resiliency thanks partly to omnichannel momentum, and extremely amenitized class-A workplace is outperforming the broader market.
“Buyers are nonetheless sitting on great uninvested capital, together with non-public fairness buyers, which have raised billions of {dollars} to deploy into the STNL area,” Jodka added.
