Marcus & Millichap: Net-leased retail sector soaring in 2017

by Dan Rafter

Retail developers today overwhelmingly prefer single-tenant developments. This is especially true in the growing quick-service restaurant, pharmacy and dollar-store segments.

That’s the key takeaway from Marcus & Millichap’s 2017 Net-Leased Retail Research report, which says that increasing optimism from consumers is providing a boon to the net-leased retail sector.

According to Marcus & Millichap’s report, single-tenant retail projects have accounted for more than 80 percent of retail construction since 2009. That’s up from below 70 percent before the recession hit in 2007 and 2008.

And don’t expect this trend to slow soon. Demand for net-leased retail properties remains high across the country, with Marcus & Millichap reporting that this demand remains ahead of the growth in supply. Net-absorption levels in this sector have exceeded the pace of development by nearly 16 million square feet every year since 2010, according to Marcus & Millichap.

Because of this, vacancy rates in the net-leased retail segment have fallen 240 basis points to 4.8 percent across the country since 2010. This vacancy level is actually 100 basis points below the pre-recession peak, showing just how strong this retail sector has become.

Not all net-leased retail developments are performing equally well, though. Marcus & Millichap reported that net-leased retail growth is especially strong in the health and personal-care and food-service and drinking establishment categories. These categories have seen year-over-year gains in growth of 8.5 percent and 5.6 percent, respectively.

Dollar stores remain strong, too. Marcus & Millichap says that in 2017, store openings will be led by this sector.

Look for significant changes in the drugstore market, too, this year. Management at Walgreens reworked the details of the chain’s pending merger with Rite Aid, a merger that is expected to take place in July. The new offer requires the selling of 1,200 Rite Aid locations to fred’s Pharmacy. This Memphis-based chain is now poised to be a national player in the drugstore segment.

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