Single-tenant net lease (STNL) remains a “compelling investment opportunity” coming into 2025 after a strong 2024, said Colliers in a report for the second half of 2024.
“Despite an uptick in retailer bankruptcies and store closures, the U.S. retail market demonstrated strong stability, with the national vacancy rate holding steady at 4.1% by year-end,” it wrote.
Between the first and second half, sales volume dropped by 13% to $5.2 billion and the median cap rate rose by 40 basis points to 6.9%. At the same time, the median price per square foot rose to $286.
Demand moderated in the second half of 2024 because of limited supply — which, as GlobeSt.com previously reported, has helped support rent growth — and shifting market demands. The amount of new development, at 44.8 million square feet of retail space under construction, was a low level not seen since 2010. Higher costs of financing, construction, land, and other expenses constrained the amount of building.
Auto parts stores saw consumers keeping cars for longer, increasing the need for maintenance and repairs. Second half-year sales grew to $725 million with a 6.3% median cap rate and median price per square foot of $350. The segment averaged $328 in sales per gross square foot, a 3.7% year-over-year increase. Average visits to auto parts stores were up 1.3% in the second half over the first.
The average size of drug stores continued to shrink, which boosted sales per square foot to $1,235 in 2024, an 11.3% year-over-year increase. Competitive pressures squeezed sales volumes in the second half of 2024 to $556 million, with a median cap rate of 7% and a $291 per square foot median price. The competition included Walmart, Costco, and Amazon Pharmacy services, expanding in healthcare, and dollar stores and warehouse clubs, attracting consumers under inflation pressure for many other products sold by traditional drug stores. There are staffing challenges due to 40,000 job losses between 2022 and 2024.
Dollar store visitors grew by 2% in the second half of 2024, showing the demand for value-priced goods. The likes of Walmart, Costco, and Sam’s Club and slashed prices on essentials, though, pulling customers from dollar stores. Dollar General and Dollar Tree are two examples of dollar store chains that have slowed their growth plans. Sales volume in the second half dropped to $596 million, with a 7.1% median cap rate and $161 median price per square foot.
Full-service casual chains saw an increase in same-store visits. That includes Chili’s (7.1%), Texas Roadhouse (3.4%), P.F. Chang’s (2.9%), BJ’s Restaurants (2.0%), and The Cheesecake Factory (1.7%). Not all did well. Red Lobster and TGI Fridays had major bankruptcies. Sales in the second half were down to $1.03 billion with a median cap rate of 6.6% and a median price of $434 per square foot.
Quick-service restaurants grew by nearly 15% as consumers looked to save money by not eating in full-service restaurants. Major brands like Chipotle, Raising Cane’s, In-N-Out Burger, Shake Shack, and CAVA plan expansions this year, focusing on high-traffic locations near highways, urban centers, and retail hubs. QSR net lease sales accounted for almost a third of all single-tenant deals in the second half.