Net Lease News

Net Lease News

April 18 – April 24, 2023

MARKET

SUN BELT CITIES OUTPERFORM OTHER MARKETS IN RESTAURANT RESERVATION RECOVERY

• Three years after the pandemic hit, restaurant reservations have fully returned to pre-health crisis numbers. Reservations were 3.3% higher in January than in 2019, indicating significant improvement over the past year.
• But a few Sun Belt cities have fared better than most in bringing people back to restaurants. In Miami, for example, the number of seated diners increased by 50.4% in January compared to January 2019.
• The reason Sun Belt cities have performed better could be attributed to their strong population and household income growth in recent years, along with a rise in year-over-year retail rents.

DEAL ACTIVITY SHRANK 56% IN Q1 AS CAP RATES ROSE 30 BASIS POINTS

• Deal activity shrank by 56% in the first three months of the year compared to a year ago. At the same time, cap rates rose across all major property types by 30 basis points to 60 basis points.
• Investment sales averaged $87.8b across every first quarter period from 2005 to 2019, putting the $85.0b in sales for the first quarter of this year broadly in line with historical averages. Granted, there is a difference in what is transacting in the first quarter of this year versus the asset classes that investors sought over the last 15 years.
• However, conditions aren’t necessarily bad. Even the drop in transaction volume was a comparison to a raucously busy base.

INDUSTRIAL

IKEA ANNOUNCES BIGGEST U.S. EXPANSION IN 40 YEARS

• The Swedish company announced that it is investing $2.2 billion in its omnichannel growth strategy in the United States, opening eight new stores over the next three years.
• San Francisco and Arlington, Va., are scheduled to open this summer – the first two locations in the plan.
• The strategy also includes 900 new “plan and order points” as pick-up locations as it seeks to modernize its stores. Here, customers can speak with a consultant on how to design their homes, as well as place orders.

AMAZON MOVES FROM NATIONAL TO REGIONAL FULFILLMENT

• In his second annual letter to shareholders as Amazon CEO, Andy Jassy has announced a coast-to-coast reorganization of the e-commerce giant’s national fulfillment network into eight “interconnected” regional hubs.
• During the pandemic, Amazon doubled the size of its logistics network to more than 400M SF and built a last-mile delivery system that, according to the company, now rivals UPS in its reach.
• Jassy also issued a mea-culpa of sorts for the overextended logistics network. Noting that revenue from Amazon’s e-retail business increased from $245 in 2019 to $434B in 2020, Jassy said “this meant that we had to double the fulfillment center footprint.

FIVE HIGH-GROWTH INDUSTRIAL MARKETS THAT ARE POISED TO THRIVE

• These five markets feature outstanding connectivity through rail, air, highway, and ports: Reno-Sparks, NV; Richmond, VA; Salt Lake City, UT; Savannah, GA; Stockton/Central Valley, CA.
• On the west, Reno provides to 60 million people in seven Western states within one day’s drive and its industrial footprint now includes high-tech manufacturing and processing companies. Since 2016, total inventory in the Stockton/Central Valley market has grown by 30%, to more than 130 million square feet in 2022.
• On the east, Richmond’s location near the center of the East Coast and access to major arterials results in a two-day drive to reach 50% of the US population. The Port of Savannah continues to outperform the national market as its local industrial real estate market is thriving and is the top growth market in the US in terms of net absorption as a percentage of total inventory (16.7%).

RETAIL

BANKRUPT BED BATH & BEYOND TO COMPLETE PROPERTY SALES BY JUNE

• The retailer’s 360 Bed Bath & Beyond and 120 Buy Buy Baby stores and websites will remain open and continue serving customers as it “begins its efforts to effectuate the closure of its retail locations,” it said in a filing.
• Landlords have been scrambling over the past several months to line up potential tenants to fill the vacancies, landlords have received commitments from tenants to fill all 12 locations if and when they close, including Sephora, Trader Joe’s, Dick’s Sporting Goods, T.J. Maxx, Ross Stores, and HomeGoods.
• One factor working in these landlords’ favor is that Bed Bath & Beyond outlets are typically located in dominant shopping centers in the suburbs, where retail has performed particularly well since the pandemic.

CHECKERS & RALLY’S EXPANDS WITH NEW LOOK AND FRANCHISE INCENTIVES

• Checkers & Rally’s launched their new image at the end of 2022. In the next year, they plan to open 40 to 50 new restaurants with their new, modernized look. 
• With just over 800 restaurants, Checkers & Rally’s is a growing company with many opportunities for multi-unit operators. It is easy for franchisees to get involved with Checkers & Rally’s because the cost of entry is lower than a lot of comparable brands on the market.
• Online food ordering has grown 300 percent faster than dine-in since 2014 and now accounts for roughly 40 percent of total restaurant sales. Checkers & Rally’s is in an optimal position to cater and grow with online order demand that is growing at an exceptional rate. They’re uniquely positioned for this because they don’t have a dining room.

QSR INVESTMENTS ARE LESS EXPENSIVE, RISKY THAN OTHER SINGLE TENANT NET LEASE DEALS

• Investors are finding quick-service restaurants to be easily accessible as a niche market that has a price point significantly less than other single tenant net lease sectors, the average sale price is roughly $2.5 million.
• The average observed cap rate on QSR transactions is about 62 basis points lower than the average single tenant net lease transaction average of 5.46%, sitting at about 4.84% currently.
• A true testament to the resilience of the QSR sector in times of economic uncertainty is that it’s not dependent on the rising 10-Year Treasury yield, which often correlates with cap rates.

MAVERIK TO ACQUIRE FELLOW CONVENIENCE-STORE CHAIN KUM & GO FROM KRAUSE GROUP

• Maverik – Adventure’s First Stop is acquiring another family-owned convenience store retailer, Kum & Go, from Krause Group in a deal that will create a chain with more than 800 locations across 20 states.
• Maverik and its parent FJ Management announced its purchase of Kum & Go, which is headquartered in West Des Moines, Iowa, on Friday. As part of the transaction, Maverik will also acquire Solar Transport, a tank-truck carrier and logistic provider also owned by Krause Group.
• Maverik operates nearly 400 locations in 12 Western states. Its combination with Kum & Go will create a convenience-store chain that stretches across the Midwest and Rocky Mountain regions.