Net Lease News

Net Lease News

December 6 – December 12, 2022 

MARKET

STNL BUYERS AIM FOR 7% CAP RATES AS SELLERS FLOOD MARKET

• Single-tenant net lease inventory listings have surged by close to 140% in recent weeks, as sellers rush into the market to try to lock in pricing before a recession sets in, B+E Net Lease reported in a Q4 report issued on the opening day of ICSC 2022.
• “Everybody has over-raised. Everybody has so much money that they want to get out,” Renshaw told us. “One of the major net lease REITs was sitting here and he said: who is going to flinch first, buyers or sellers? He’s going to flinch first and continue to pay really low cap rates because he has to get the money out.”
• The majority of buyers in H1 2022 (51%) were private levered buyers and 33% were institutional cash buyers. This has now shifted to 35% private buyers and 50% institutional buyers as leveraged players head to the sidelines as rates rise and a downturn looms.
• The surge of inventory on the market already is having an impact on how deals are being structured in terms of the assumptions about pricing, Renshaw said.

UNCERTAINTY REIGNS FOR STNL

• Supply of product in the single-tenant net lease sector has “skyrocketed” quarter-over-quarter, with an increase of 138.9% more properties on-market as of Q4, according to B+E Net Lease.
• As of Q4, B+E tracked 3,905 properties on the market, with an average cap rate of 5.32%, consistent with last quarter but below the first half of the year. Meanwhile, interest rates clocked in at 3.08% on the first day of Q4, a significant increase from 0.08% in Q1.
• The greatest uptick in supply of retail properties on market were for car washes (+106%), QSR (+61%) and convenience stores (+56%). Industrial warehouses also saw a 175% uptick in supply quarter-to-quarter.

CONSUMER CONFIDENCE IMPROVES, CONSTRUCTION COSTS STAY HIGH, MORTGAGE RATES DECLINE

• Preliminary December numbers showed the university’s nationwide consumer sentiment index at 59.1, which was up from 56.8 but well below the 70.6 reading of December 2021. The index generally reflects the percentage of survey respondents viewing the U.S. economy favorably, based on factors including confidence in their own finances and overall business conditions.
• The latest Labor Department numbers showed construction material costs for nonresidential projects rose 10.1% in November from a year earlier, a trend that continues to pinch developers and contractors as supply chains are yet to return to pre-pandemic normalcy.
• Mortgage rates went down for a fourth consecutive week for the period ended Dec. 8 in the midst of a slowing housing market, according to the latest weekly national survey of lenders by government loan-backing agency Freddie Mac. Freddie Mac found 30-year, fixed-rate mortgages averaging 6.33%, down from 6.49% in the prior week but still well above 3.1% in the comparable week of 2021.

INDUSTRIAL

PROLOGIS PREDICTS SIGNIFICANT DROP IN WAREHOUSE DEVELOPMENT

• Prologis is predicting that U.S. warehouse development starts will drop to a 7-year low, as rent growth exceeds 10%.
• The warehouse property owner says the rapid rise in the cost of capital is the culprit and starts will fall by 60% to less than 175 million square feet in 2023.
• A pullback of this magnitude would create a shortage of space in 2024. The pipeline will drop from over 500 million square feet in Q3 2022 to 275 by year-end 2023. However, low vacancy will produce another year of double-digit rent growth.
• Even if new demand fell to zero, the national vacancy rate would increase by just 260 bps to 5.9%, well below the long-term average.

HYUNDAI, SK PLAN GEORGIA BATTERY PLANT VALUED UP TO $5 BILLION

• Hyundai and SK Innovation Co. will build a multibillion-dollar factory making batteries for electric vehicles in the northern Atlanta suburbs, the latest big automotive sector investment in the Southeast.
• The two South Korean companies will construct a plant valued at between $4 billion and $5 billion, according to the state of Georgia. It’s slated for a planned industrial site near Cartersville, Georgia, about 45 miles north of Atlanta, and is projected to begin operations in 2025. The partnership will hire 3,500 workers for the facility.
• Automotive companies have picked up the pace in recent weeks unveiling plans for giant investments in factories for electric vehicles and batteries. Many planned facilities are located in the Southeast U.S., including the $11.4 billion Blue Oval project in Kentucky and Tennessee, a partnership between Ford and SK. LG Chem last month announced a $3.2 billion plant in Clarksville, Tennessee, to make cathodes for General Motors’ electric vehicle batteries.

RETAIL

COSTCO TO OPEN 24 NEW STORES; Q1 SALES UP BY 8.1%

• The membership warehouse club retailer plans to open a total of 24 new stores in its current fiscal year, including 15 in the U.S.
• Costco is also adding more warehouse space. It has 27 openings planned for the year, with three relocations and 24 new locations. The retailer opened seven net new warehouses in its first quarter, including four in the U.S.

TECH-DRIVEN MINI-GOLF/DINING CONCEPT CONTINUES EXPANSION

• Puttshack, whose creators include the founders of Topgolf, has signed a lease to open a location at the Natick Mall in Natick, Mass. The new venue, which is expected to open its doors at the end of 2023, will be Puttshack’s second location in Massachusetts.
• Putthsack opened its first U.S. location in 2021, at The Interlock in Atlanta, followed by venues in Chicago, Boston, and Miami. In addition to Natick, other locations set to open in 2023 include Dallas; Denver; Houston; Nashville, Tenn.; Philadelphia; Pittsburgh; Scottsdale, Ariz.; St. Louis; and a second location in Atlanta.
• Additional venues in Louisville, Ky., and Reston, Va., will open in 2024 and beyond. The company said it expects to announce more U.S. locations soon.