Net Lease News

Net Lease News

Week of November 1st 2022

MARKET

SINGLE TENANT NET LEASE MARKET ON PACE FOR STRONG FINISH (GLOBEST)

• The single-tenant net lease market is likely to end the year strong, with sales activity on track to make 2022 the third strongest year in history. If current activity levels carry over to Q4, the year will claim $74 billion in annual sales volume.
• Investors are still flocking to the sector, with sales activity for net-leased retail rising between 24% to 27% across the 12-month span ending in June.
• Moving forward, investors seeking long-term cash flow may capitalize on high pricing in other sectors and move equity via 1031 exchanges into less management intensive single-tenant properties. Yield-focused buyers may target Midwest markets with increased frequency and are home to average returns 30 basis points to 80 basis points above the national mean.

FEDERAL RESERVE HIKES BY 0.75 POINT, SIGNALS SLOWER INCREASES BUT ULTIMATELY HIGHER RATES (WSJ)

• The Federal Reserve lifted interest rates by another 0.75 percentage point to combat inflation and signaled plans to keep raising them, possibly in smaller increments but to higher levels than previously anticipated.
• The increase approved Wednesday, the Fed’s fourth consecutive 0.75-point rate rise, lifts the central bank’s benchmark federal-funds to a range between 3.75% and 4%. After the decision, Chairman Jerome Powell said officials would contemplate a smaller hike at their next meeting in December. But he cautioned that they might raise borrowing costs next year more than they have projected.
• Data released since the Fed’s September meeting have provided a mixed picture of the economy. While domestic demand has slowed and the housing market is entering a sharp downturn, the job market has remained strong and inflation pressures have stayed elevated. Recent earnings reports have shown strong consumer demand and pricing increases.

INDUSTRIAL

AMAZON DEBUTS NATION’S FIRST ZERO-CARBON DISTRIBUTION CENTER IN SACRAMENTO (BIZJOURNALS)

• Seattle-based Amazon.com Inc. (Nasdaq: AMZN) says the new center near Sacramento International Airport will be the world’s first zero-carbon fulfillment center or logistics facility certified by the Seattle-based nonprofit International Living Future Institute.
• The building opened in August, and is still awaiting a rooftop solar array that will supply about 80% of its power needs. The rest will be sustainably sourced.
• The 149,000-square-foot center was built with more sustainable building materials like lower-carbon concrete. It has a fully electrified HVAC system and high-efficiency material handling equipment. It is powered by 100% renewable energy, and it uses smart irrigation systems that sense rain to reduce landscape watering. It is also highly insulated to reduce heating and cooling load.
• Amazon has committed to a climate pledge mandating that the company will be net-zero carbon across all its operations by 2040.

HYUNDAI PLANS MAJOR ELECTRIC VEHICLE BATTERY PLANT IN ALABAMA (COSTAR)

• Hyundai Motor plans to construct a $205 million plant in Montgomery, Alabama, to make batteries for electric vehicles produced at the company’s factories in Alabama and Georgia.
• Hyundai will build the 450,000-square-foot facility next to its existing automotive factory in Montgomery. The plant, which will be operated by the company’s Hyundai Mobis subsidiary, is projected to make 200,000 batteries yearly.
• Automotive manufacturers are racing to shift production from gas-powered to electric vehicles and are planning to build new facilities to make both electric automobiles and batteries. Legacy carmakers like Ford and General Motors and new companies like Rivian Automotive and Tesla are rapidly developing new plants in the United States.

RETAIL

COURT HALTS ALBERTSONS DIVIDEND (COSTAR)

• A state court in Washington has put a temporary halt to a planned $4 billion dividend payout by grocery chain Albertsons, which was scheduled to take place Monday ahead of the company’s proposed acquisition by rival Kroger in a $24.6 billion deal.
• A statement from Albertsons said the company “intends to seek to overturn the restraint as quickly as possible,” on grounds that the attorneys general are incorrect in their claims regarding the potential financial and competitive harm that would be created by the dividend payout.
• A completed acquisition of Albertsons by Cincinnati-based Kroger could create a combined company with nearly 5,000 stores, 66 distribution centers and 52 manufacturing plants. However, regulators in the past have required significant selloffs of store locations to preserve competition as a condition for large supermarket mergers.

STARBUCKS STICKS WITH ACCELERATED STORE GROWTH PLANS (COSTAR)

• Riding a strong quarterly performance, Starbucks executives say the company is sticking to plans to accelerate the coffee chain’s store growth in North America and abroad.
• On an earnings call Thursday, interim CEO Howard Schultz said the company would aim to open roughly eight stores per day worldwide over the next three years, equivalent to an annual growth rate of 8% and a pace of close to two U.S. stores per day.
• As economic pressures have increased on U.S. consumers in recent months, restaurant companies such as McDonalds and Chipotle have noted in recent earnings calls that diners have been gravitating to less expensive food options.

CHEESECAKE FACTORY TARGETS SUBURBS FOR RESTAURANT EXPANSION (COSTAR)

• Cheesecake Factory is looking to turn rising foot traffic into 7% annual location growth, with up to 24 restaurant openings planned for 2023 following at least 13 expected to debut by the end of this year.
• The Calabasas, California-based operator of more than 300 mostly full-service restaurants in the U.S. and Canada is targeting suburban areas of cities such as Houston, Atlanta, Phoenix and Nashville, Tennessee. It is looking to expand its flagship brand and others it acquired in 2019 from Fox Restaurant Concepts, including North Italia and Flower Child, the latter featuring vegetarian and other health-oriented items.
• The company is seeking to capitalize on the return of loyal customers and attract new ones by investing in otherwise untapped markets.

OFFICE

MEDICAL OFFICE CONTINUES ITS TEAR DESPITE LOW COMPLETIONS (GLOBEST)

• Medical office fundamentals continue to be solid after recovering from pandemic-era construction delays, with the sector posting historic starts.
• Medical tenants remain in place more consistently than other commercial tenants due to location of services and higher investment in their premises. Compared to the commercial office sector as well as other preferred sectors such as retail, industrial and multifamily, medical office occupancy is routinely stronger, and the events of the pandemic caused less long-term disruption to the sector.
• Investment trends also point to another strong sales year, thanks to tailwinds including an aging population and the increased availability of procedures in outpatient settings. Medical office sales reached $9.2 billion in the first half of 2022, after a record year in 2021 with $20 billion closed.

SPECIALTY

SKILLED NURSING OCCUPANCY TICKS UP YET AGAIN (GLOBEST)

• Skilled nursing occupancy continued to increase into late summer, occupancy rose 48 basis points from July to end the month of August at 78.8%, the highest occupancy rate since April 2020. Occupancy is up 580 basis points from its January 2021 low of 73.0%.
• As staffing, wage growth, and general inflation pressures persist, operations for many operators will be under pressure but the long-term demand for skilled nursing services is expected to grow over time.