Retail sales and consumer sentiment remain positive, but net lease buyers should brace for interest rate hikes
Despite interest rate hikes on the horizon, single tenant spaces are considered less vulnerable than other investment asset classes and are a great hedge against the headwinds that can affect equities. Since net lease buyers are purchasing existing sites with income in place, it eliminates the risk of lease-ups, providing opportunities to lock in strong yields in hard assets.
Key takeaways from this report include:
- Overall, capitalization (cap) rates for net lease retail properties had a slight uptick in Q4 2017 settling at 6.4%, which will further tighten the spread between cap rates and interest rates.
- While sales transaction levels for all property types fell 7% in 2017, sales of single tenant net lease (STNL) retail property remained even with 2016 with a total volume of $14.7 billion, though this was still down from a high of $19.6 billion in 2015.
- Retail sales have been slowing in recent months as weak wage growth has been taking its toll on consumer spending. However, wage growth has been rising recently and households should further benefit from the tax cuts, which bodes well for retail sales this year.
- Newly-installed Fed Chair, Jerome Powell, has signaled that the trend of interest rate hikes will continue during 2018, which could further impact buyers’ decision-making if the spread between the 10-year Treasury rates and average cap rates continues to shrink.
For more insights, explore the Q4 2017 Single Tenant Net Lease Retail Report.