The appeal of single-tenant retail properties
While some types of retail property have done better than others during the pandemic era, there is one retail type that has proven to be a clear winner.
Stand-alone retail properties, also known as Triple Net Lease (NNN) properties are usually occupied by a corporate client such as a major bank, grocery store or big pharmacy. They have long been a preferred asset for investors, but now we’re seeing a significant increase in buyers searching for this type of commercial property.
The appeal for many savvy investors is the security and stability offered by the strong covenants and long, triple-net terms that usually govern the leases of these types of properties.
What are Single-Tenant Retail Properties?
Triple-net leases usually cover 10 to 20 years, with annual rent increases, or escalators, built in. The tenant is provided near-total autonomy of the property and pays not just rent and utilities, but three additional categories of property expenses: property tax, insurance and most maintenance costs, such as landscaping and snow removal.
Demand for quality single-tenant retail properties continues to outpace supply according to some industry experts. With investors keen to capitalize on low interest rates in anticipation of higher borrowing costs in the latter half of 2022, “bidding wars” are not uncommon. In addition, with lower listing prices than multitenant buildings, single-tenant retail properties are a strong draw for private investors.
Challenged by the acute supply shortage of industrial property and intensive management required for residential investment, “a lot of investors are chasing these single-tenant retail buildings,” Mr. Grewal says.
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