The only-tenant web lease (STNL) market has seen a “exceptional quarter-over-quarter surge in provide,” says a brand new report from funding brokerage agency B+E. However that’s removed from all excellent news.
“In Q2 of 2023, there have been 3,286 properties listed in the marketplace,” they wrote. “By Q3, this quantity elevated considerably to three,905 properties, representing a rise of virtually 19% quarter-over-quarter.”
The third quarter noticed an extra 1,236 properties dropped at market — 31.7% of the present provide. However the inflow isn’t essentially excellent news. The brand new inventory is racing in at double the speed as older inventory goes off the market, and 15.3% of the present provide has been in the marketplace for greater than a yr.
Of these long-term marketed properties, 43.7% have cap charges under 5.5%. Evaluate that to the properties on-market for lower than a yr, the place 27.0% have a cap charge under 5.5%. “Few properties are penciling at a 5.50% cap or decrease, indicating challenges in finalizing transactions attributable to rising rates of interest,” they wrote.
The brink additionally suggests an ongoing bid-ask hole between patrons and sellers that may take a while to work via with no important enhance in transactions to supply worth discovery.
The largest portion of the surge in retail was a 144% enhance in big-box properties. “A outstanding contributor to this surge is Tractor Provide, which launched 20 new properties to the market, with a mean cap charge enhance of 43 bps from the earlier quarter,” they wrote. “Tractor Provide’s second quarter earnings name introduced modifications to its actual property technique, together with accelerating new retailer development, which has seemingly performed a big position within the elevated provide of properties in the marketplace.”
Distribution facility provide additionally noticed a soar of 19% between Q2 and Q3. B+E sees that as ensuing from the rising use of sale-leaseback inside industrial. In that area, cap charges had been up 38 foundation factors, suggesting better uncertainty about transactions. “The rise in cap charges displays heightened consciousness of the association’s stability, significantly as tenants, grappling with monetary constraints, select SLB transactions as a method to generate more money,” they wrote.
