First Half 2019 Net Lease Sector Volume Rebounds Despite Drop in Transactions

Our H1 2019 Single Tenant Net Lease Retail Report states that the drop in interest rates helped extend the sector run late in the cycle as it provided some buoyancy to demand. The Fed’s stance is likely to benefit the net lease sector but a slowdown in economic activity coupled with tighter financial conditions could still hit property transactions of all types, including net lease retail.

Key Takeaways:

• This is our third consecutive report where volume and transactions are see-sawing opposite of one another — further evidence of where we are in this late stage of the cycle.
• The Fed’s stance is likely to benefit the net lease sector but a slowdown in economic activity coupled with tighter financial conditions could still hit property transactions of all types, including net lease retail.
• Nothing happens in a vacuum, but should 10-year sector averages repeat, expect net lease retail transactions and volume to improve in the second half of 2019. Within the sectors we track, more than half (55%) of annual sales transactions and volume take place in the final six months, based on 10-year averages.
• The dollar volume of single tenant net retail was up 5.3% year over year despite transactions being down 7.4%.
• While volume remains off the pace of the peak year of 2015, volume and transactions remain at 2017 levels — an improvement from six months ago where end of 2018 activity had reverted to lower 2013 levels.
• Fast casual dining and drug stores drove the largest increases in year-over-year activity for H1 2019. Quick-service restaurants (QSR) mirrored the larger CRE trend, with transactions down 7.8% year over year but volume was up 1.6%. The dollar and auto sectors continue to report decreased activity. Both are trading near lower 2014-2015 levels.
• Single tenant retail sales price per square foot increased 12.5% year over year from $322 (Q2 2018) to $362 (Q2 2019).
• Food service and beverage remains in the third spot at 4.2% growth. Sales of sporting goods and hobby goods decreased from -5.8% at end of 2018 to -6.7% as of Q2 2019. Electronics and appliances, which registered slight growth at year-end 2018, is down 4.5% through midyear 2019. Gasoline retailers, whom had taken the top spot with 13.1% year-over-year growth at end of 2018, report flat year-over-year growth at midyear (+0.6%).

For more insights, explore the H1 2019 Single Tenant Net Lease Retail Report.