The Boulder Group Releases Net Lease Market Statistics

Retail Traffic Magazine - January 1, 2004

Research conducted by Jeff Rothbart, an attorney and research director at The Boulder Group, reveals that the number of available net leased properties of all types in the U.S. has reached a ten-year low. Many net lease investors think that the inventory is at least two years away from catching up with the demand. Once the sluggish economy fully turns the corner, development activity will increase and only then can the market equalize.

As of November 2003, The Boulder Group tracked 3,198 net leased properties with a combined value of $11.2 billion. The total U.S. market is estimated at about $20 billion a year. Of those company's followed by Boulder, 1,872 properties, or 59 percent of the sample, are retail, accounting for $4.3 billion, or 38 percent of the total. This disproportionate share of properties to value is due to retail properties having the lowest median selling price, $1.47 million, in the net leased market. More than 75 percent of all retail properties are either free-standing buildings or restaurants, both of which are typically net leased. This figure that should rise to 80 percent in coming years.

Mr Rothbart reports that there are significantly fewer high-yield opportunities in the retail sector than in the office or industrial sectors. In the retail sector, properties over $6 million have an average CAP rate of 7.52 percent, far lower than the 8.7 percent for similarly priced properties in the industrial sector and 8.55 percent in the office sector. About 75 percent of available retail properties cost less than $3 million. Only 1.6 percent cost more than $10 million — representing less than 1 percent of the entire net lease market. This is significantly less than that for the industrial and office sectors, which represent 2.4 percent and 3.4 percent respectively.

In retail, the most sought-out properties are those retailers with investment grade credit ratings — those with a Standard & Poor's rating of BBB or higher. Walgreens, Home Depot, CVS, Wal-Mart, Lowe's, Costco, Kohl's and Sam's Club are examples. But many investors are still interested in borderline credit tenants such as Bed, Bath & Beyond, Albertsons, Eckerd, Staples, Toys “R” Us, and Best Buy. Moreover, investors remain interested in corporate-backed restaurant properties, which comprise almost 25 percent of the available retail net lease properties.

The states of Georgia, Arizona, Florida, California and Texas offer the greatest number of available properties, or 56.3 percent of those tracked by Boulder. This trend can be attributed to high levels of new construction commensurate with the strong population growth. Currently, the more difficult states in which to locate investment properties are in the Northeast. New York, New Jersey, Michigan, Pennsylvania and Massachusetts have the least number of net lease opportunities which have only 2.7 percent of the available net leased properties on the market. Sphere: Related Content