A Lesson in Value For Tenants From Single Tenant Net InvestmentsOctober 15, 2012
Cassidy Turley Northern California has just released our Fall 2012 Single Tenant Net Lease Investment Report. This report tracks national trends within the commercial real estate investment market with a special focus on single tenant net lease properties. Understanding the sale market and value that your lease has on a building can shed light on your next lease negotiation…
A summary from our report;
Following a robust start in which deal activity had been reaching pre-recession levels, sales volume has been slowing over the final half of the year. The cause of this slowdown, however, has not been diminished investor demand. Investor demand is actually going up. The problem has been a shortage of properties available for sale in the marketplace.
Demand levels continue to increase thanks to the relative security of net leased properties, but demand also directly reflects both the credit-worthiness of the tenants in place, as well as the length of the existing lease term. McDonald’s tops our list in terms of investor demand, followed by CVS and Walgreen’s. This is because all of these tenants prefer long-term deals of 20 years or more and are all considered relatively recession-proof in their business models and risk-free in terms of credit.
Pricing is increasing for nearly every net lease investment type, with the exception of most types of big box retail. Cap rates, meanwhile, continue to compress for most product types in most markets.
How does all of this effect tenants in the market place? Understanding the mechanics of sale values can give you a better perspective in your lease negotiations. As a tenant, you need to be aware of the value that your lease is creating for the building because the landlord is likely making a decision based on that value. Single tenant triple net properties are an excellent example of how a lease creates value.Your credit, the lease rate and the term of the lease make an impact on the building’s value. If you analyze your last counter proposal and feel it is higher than you expected it to be, think about how it will affect the value of the building. Once you understand this, you may be able to counter the landlord and give the same value but lowering your lease rate by adjusting the term or emphasizing the strong credit of your company.
Have you ever considered building sale values when you were negotiating your office lease?