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The difference may be due to the nature of the tenant.
Looking at the data from different angles allows for different analyzes of the same time period. This is important for investors and developers because some parts of the overall market may be in much better shape than others. In this case, there is an interesting comparison of single-tenant net leases and multi-tenant net leases based on his two different reports from Northmarq, each focusing on a portion of the larger market.
The Northmarq report on single-tenant net lease investment sales for the fourth quarter of 2023 was down 31.7% sequentially and 57.9% year over year. Volume in the quarter was the lowest since at least early 2018. The average cap rate increased 19 basis points sequentially to an overall average of 6.29%. The increase was the highest since at least 2018, when it was 62 basis points from end-2022 and end-2023 numbers.
Dollar investment sales in the fourth quarter of last year were $40.63, the lowest in the five years from 2019 to 2024. The annual cap rate was the highest in the same five-year period, but it was only 8 basis points higher than in 2019.
Next, we compare Northmarq’s Q4 Multi-Tenant Net Lease Report. Although still decreasing from 2022, this number is much better than the single-tenant segment. This was an increase of 34% compared to the third quarter, but a decrease of 28.8% compared to the fourth quarter of 2022.
On an annual basis, sales in 2023 were $44.5 billion. This is 37% lower than in 2022, still a high threshold, but not as much of a drop as single tenants.
The overall multi-tenant cap rate was 7.10%, an increase of 4 basis points from the third quarter of 2023 and an increase of 46 basis points from the fourth quarter of 2022.
Therefore, although the decline in transaction volume was greater for single tenants than for multitenants, the increase in cap rates was lower. These two comparisons can be linked through the mechanisms of risk expectations and the buy-to-buy gap.
In the case of a single tenant, the tenant has a good credit rating, is likely part of a national chain, has a longer lease, and may provide a steady income that can postpone a decision to sell. The trading volume may have been low because of the high
On the other hand, multi-tenant cap rates are higher, which can mean less certainty about the product or a greater tendency to agree on pricing.
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