Net Lease News

Net Lease News

April 24 – May 1, 2023

MARKET

FED RAISES INTEREST RATES ANOTHER 25 BP – GlobeSt

• The Federal Reserve’s Federal Open Market Committee (FOMC) announced that it would raise the benchmark federal funds rate range 0.25 percentage points to 5% to 5.25%.
• While the pace of job gains has slowed, unemployment has hovered around where it has been rather than the 4.5% the Fed projected in its March economic statement for the current year. Inflation, especially core figures, is still significantly above the 3.3% projected for 2023.

• What will happen over the rest of the year is a tug-of-war according to some experts. In the press conference, Chair Jerome Powell was asked whether this would be the last rate hike. He answered, “That’s going to be an ongoing assessment … We’re going to have to see data accumulating.”

Sales Leaseback Demand May Have Just Gotten a Boost – GlobeSt

• Green Street believes that a recent multimillion dollar sale-leaseback transaction “could suggest increased demand for sale-leaseback financing following the recent banking crisis in early March that likely tightened bank lending standards for small and medium-sized businesses.”

• A recent report points to a possible step up in sales leaseback transactions as their cap rates, which range from 6.25% to 8.25%, offer a more attractive cost-of-capital solution for companies than ever before despite some upward cap rate movement.

• Sales leasebacks are also gaining appeal to net lease investors, which are watching deal volume and asset pricing decline. In the last three months the sales price for an average deal came in at 7.1% below the asking price and the average sale took 8.6 months to complete.

JP Morgan Chase Says CRE Asset Classes Resilient in H1 – GlobeSt

• Economic uncertainty remains high for commercial real estate through the rest of 2023, pointing to the interest rate environment and the future of office space. “But there are also positives: Multifamily and industrial continue to perform well, and the industry may have underestimated the strength of neighborhood retail.” 

• E-commerce remains popular but it is not the only way to obtain goods and services. It accounts for roughly 15% of retail and is also helping the industrial sector to stabilize, and while it’s still considered healthy, it is starting to soften after a great run.

• The vacancy rate for distribution and warehouse space was at a record low of 4.1% throughout the second half of 2022 as the rate steadily declined each quarter since the end of 2020. The rate rose 10 basis points in the first quarter of 2023 to 4.2%.

RETAIL

Aldi Continues Robust U.S. Expansion, Adding 120 Stores This Year – BISNOW

• Discount grocer Aldi is planning to open a net total of 120 new stores in the United States this year, bringing its footprint nationwide to about 2,400 stores. Last year, the company opened or remodeled 139 locations.

• That many stores puts Aldi among the largest grocery store chains in the country. As of early 2023, The Kroger Co. had 2,719 locations, and Albertsons had 2,271 locations.

• During the first quarter of this year, the company added 35 locations. To support its operations in the southeastern U.S., Aldi also recently opened a new 564K SF regional headquarters and distribution center in Loxley, Alabama, near Mobile.

Wingstop Puts ‘Foot on the Gas’ and Doesn’t Let Up – QSR Magazine

• The fast casual’s same-store sales rose 20.1 percent in Q1, rolling over 1.2 percent growth last year and a 20.7 percent rise in 2021. Nearly all of it was driven by transaction growth.

• Wingstop has eyes on AUV north of $2 million and 7,000 restaurants systemwide (4,000 in U.S. and 3,000 internationally). In April, the brand crossed 2,000 stores globally for the first time, and its AUV is approaching $1.7 million.

• The chain exited 2022 witnessing low-double-digit increases, and that momentum was projected to continue into this year. Because of the strong start to 2023, the brand raised its full-year outlook to high-single-digit same-store sales growth, from its prior guidance of mid-single digits.

OTHER

The New Potential Office Killer: AI – GlobeSt

• As was widely reported in March, Goldman Sachs economists predicted in a report that 18% of global work, some 300 million jobs, could be eliminated by AI-powered automation.

• IBM is already preparing for likely cuts in the near future. CEO Arvind Krishna in an interview with Bloomberg said the company is pausing on hiring for roles that AI might replace in the next few years. Almost a third of back-office jobs, including areas like HR, could be replaced within five years.

• That runs along the traditional view that while technology can destroy jobs, it can also create new ones. The question though is the pace at which the new jobs come about.