Market Snapshot of the Net Leased (NNN) Market

According to the latest Marcus & Millichap Net Leased Outlook Report, strong demand along with a limited supply of investment-grade assets will encourage buyers to consider properties with shorter lease terms or non-credit tenants. Some REITs are targeting shorter leases after filling their portfolios with low-cap rate purchases. Private buyers are often searching for 1031-exchange opportunities in the single-tenant arena, making their timeline to buy much shorter than most REITs. Consequently, the most sought after properties are sold very quickly with aggressive bidding. Nonetheless, non-credit and franchisee assets will be attractive to all types of investors as a hedge against a potential rise in interest rates. Cap rates for these deals average 100 to 150 basis points above the investment-grade purchases, and can reach 200 basis points above the debt costs. In addition, many non-credit and franchisee properties have rent increases incorporated in the lease, while sought after drug store deals have flat rent structures in place. Owners who have loans coming due, or are trading out of short-lease properties, will fuel sales of these secondary single-tenant assets that have become so prevalent in the market. Statistics indicate stable to increasing demand in the National Net Leased Market. This is evidenced by the decreases in cap rates and increases in the demand for credit tenancy. All these factors indicate that the National Net Leased (NNN) Market is in a recovery stage.