Triple Net Retail Commercial Real Estate Market Update
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Existing triple net retail commercial property has experienced quite a resurgence over the last couple of years for several reasons.
First, new construction of triple net retail commercial property for sale and lease has remained at generational lows forcing rents up on existing inventory. True, that retail real estate for sale are at prices that are no longer bargains, but still a fair deal as compared to other asset classes.
True, Santa Monica commercial real estate has seen a flurry of new mixed use development over the last few years with triple net retail on the ground floor with office on the 2nd or residental from the second floor up. See your Santa Monica commercial realtor for what’s new as there’s plenty of new net leased real estate to choose from at a price. Rents for retail property West Los Angeles and Santa Monica has risen steeply over the last year.
Second, the triple net, national credit retailers got their businesses in order relatively quickly after the 2008 crash and as a result we lost relatively few retailers versus what we thought would happen. The ones we did lose probably were going away anyway – thinking Borders, Blockbuster and Circuit City.
Third, consumers have gotten their financial houses over the last five years from the gluttony of 2004 to 2008 and using illusional home equity as an ATM. They have deleveraged to the point that outstanding consumer credit has been reduced by $1 trillion. Savings rates have climbed back to pre boom levels. Housing and financial markets have recovered to almost six times disposable income.
Fourth, there’s lots of pent up demand due to consumer retrenchment over the last over the five years so retail sales are expending at a healthy six percent per year. Auto sales are running at an annualized 15 million units per years up from 10 million in 2009 and getting close to the 16 million peak from 2006.
Fifth, The threat of internet retailer versus conventional brick and mortar retail commercial property hasn’t manifested itself to any great degree. Sure, it’s one of the many factors behind the demise of Borders, Circuit City, Comp USA and a few others in the book and electronics segment, but more broadly it hasn’t decimated conventional brick and mortar retailers. Online retail is growly at 20 percent per year, but that’s coming off of a very low basis.
So where are we regarding national credit tenant net leased retail property valuations? The national average yield in the second quarter of 2013 was 6.4 percent and close to the ten year national average of 6.7 percent. That’s above the national average for commercial office real estate at 5.7 percent and multifamily apartments at 5.4 percent. Plus, the spread between 10 year treasuries and average retail commercial property cap rates is near record highs.
In summary, although no commercial property investment is ever risk free, single tenant, national credit, net leased, retail commercial property as an investment is as good as it gets. Plus it’s getting scarce as I personally see in Columbus commercial property for sale or lease in the areas where one would want to do business … High street corridor and outside of I-270 such as Westerville, Dublin , New Albany, Easton, Polaris, etc. In fact Westerville commercial property for sale and lease is turning into a real tight market as I have several buyers all looking for the exact same type of triple net property to purchase plus I have retail tenants to fill them.
I’m also licensed in California, and Los Angeles commercial property for sale or lease market , especially Santa Monica retail property for sale or leased is getting as tight and rents are rising.
We have some good years ahead so enjoy.
