Retail NNN Prices Continue Steep Upward Climb
October 28, 2013
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According to data from CoStar COMPs, single-tenant, triple net investment sales totaled $2.71 billion in the third quarter ended Sept. 30. That compares to $3.16 billion in the second quarter of this year and $2.75 billion in third quarter a year ago.
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The average sale price per square foot, however, continued its steep upward climb. Of 465 sales CoStar COMPs examined from the third quarter, retail properties accounted for 337 coming in at an average of $56.47/square foot compared to 328 for the same period a year ago at an average of $39.75/square foot.
Both average and median cap rates rebounded from their historic lows in the second quarter, according to NNNetAdvisors, a net lease investment brokerage firm in San Francisco.
“It seems that the market has reacted almost immediately to the reality of rising interest rates,” the company noted in its separate third quarter net lease property report.
“The one trend that has caused us to shake our head a bit was the average days on market has increased by approximately 22% over the past two quarters,” the brokerage noted. “It seems highly unlikely that in a market with extreme supply limitations and strong demand, that this number would experience any kind of increase over the past couple of quarters. In 2012 Q4 and 2013 Q1, average days on market was 157.”
According to NNNetAdvisors analysis of its data a bifurcation has developed within the sector. The average of 189 days is basically a combination of two subgroups.
The first group is properties that seemingly have minimal issues and sell quickly (longer leases, good credit, good location), likely stay on the market in a range of 90 days from initial listing to close.
The second group, that has begun to push this average number up, is properties that have been passed over the first time around and are now getting second looks from either buyers seeking out higher cap rates or desperate exchange buyers that are struggling to find a match.
“Most of these properties have some initial issues and can get lost in the shuffle during their initial time on the market (short lease term, mediocre credit, tertiary location),” NNNetAdvisors noted. “Buyers are increasingly finding themselves coming back to these properties and having to make sense of the hair on these deals in order to put their idle capital to work and/or face unavoidable tax consequences.”
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