Single-tenant retail draws increased investor interest in Phoenix

 

Despite a drop in overall commercial real estate investment volume in the Valley from the first quarter of 2020 to the first quarter of 2021, investment in net-leased assets increased 2.6% in the time period.

Net-lease properties are generally leased to one tenant, with the tenant paying taxes, insurance and maintenance on the property, which can be seen as a safe investment, said Benjamin Farthing, associate at CBRE in Phoenix.

According to a study done by CBRE, Phoenix ranked fourth of U.S. markets for retail net-lease investment volume in the first quarter, with $81 million worth of investment sales, a $50 million increase from the same three-month period in 2020.

Farthing said net-leased real estate has become a popular investment for private investors and was pushed into popularity even faster by the Covid-19 pandemic. Most of the private capital investors Farthing works with come from California, and many seek investment opportunities ranging from $1 million to $5 million. Larger institutional investors and real estate investment trusts usually seek larger deals, he said.

The remainder of 2021 is also expected to remain on the strong path set by the first quarter, Farthing said.

“A lot of investors put their capital on the sideline during the pandemic, and now they want to place that capital,” he said, adding that low interest rates and proposed changes to real estate and tax laws now have investors looking to place money as fast as possible.

Unsurprisingly, properties with drive-thrus remain some of the most popular investment options, and there is “limited to no vacancy” for drive-thru properties in the Valley, Farthing said. Some retailers, like Dutch Bros. and Salad and Go, which focus on drive-thru and pickup only, were uncommon in the industry, but now bigger brands like McDonald’s and Taco Bell are creating drive-thru and pickup only locations.

For all net lease property types, Phoenix ranked 11th in the nation for investment volume in the first quarter, with a total of $388 million in investment, according to the CBRE study. Boston took the top spot, with $2.3 billion. For office and industrial net-lease investment, Phoenix ranked eighth and 16th, respectively.

Source: Phoenix Business Journal