Cap rates for Rite Aid and Walgreens properties experienced cap rate increases of 19 and 15 basis points respectively.

National asking cap rates in the single-tenant drug store sector increased to 6.4% in the third quarter, according to The Boulder Group’s Net Lease Drug Store Report. This represented a 17 basis point increase when compared to the prior year.

“The drug store sector, hasn’t been developed a lot in the last few years,” states Randy Blankstein, president of the Boulder Group. “They’ve been renegotiating leases. A lot of the stuff that has traded was older because people see the cap rates come down and want to take advantage of it.

In the third quarter, the net lease drug store sector was priced at a 33 basis point discount to the net lease retail sector. The increase in cap rates for the drug store sector was driven by a shorter average remaining lease term, which dropped to 10 years in the third quarter.

If you group drug stores with similar lease terms together, cap rates are down slightly, according to Blankstein. “Among the ones that have traded, cap rates have gone up because shorter-term [leases] can trade. People see the cap rates going down and they think this is a good time to sell.”

Cap rates for Rite Aid and Walgreens properties rose 19 and 15 basis points respectively, while single-tenant CVS properties experienced a 10 basis point decrease. These tenants remained open due to their essential status and continued to pay rent on time, according to the Boulder Group.

“Rite Aid is not industrial grade and has been through various cycles and spinoffs,” Blankstein says. “Walgreen and CVS are investment grade and sell more similarly. Between Walgreens and CVS, CVS sells a little better because it’s a much bigger company. Walgreens took a lot of stores from Rite Aid and a lot of those stores have overlap with their existing stores. Walgreens has some stores that won’t be renewed in the future so a lot of people think CVS is the better.”

Through Q3 of 2019, the Boulder Group tracked 363 single-tenant drug store sector trades for $1.6 billion. Through Q3 2020, 496 transactions sold for $2.1 billion, which was a 31% increase.

“We’re up 30% volume this year, which probably means we borrowed some from next year and supply will be less next year,” states Blankstein. “Transactions would probably go down because of less supply, demand will be the same. So you could argue that supply goes down, demand remains the same, and cap rates continue to go lower for equal lease terms.”

The supply of long-term leased properties is decreasing. In 2019, leases with more than 15 years remaining on their primary term made up approximately 25% of the market. In 2020, this segment has decreased to approximately 15% of the market.

“Anytime there’s a lack of new construction, it’s going to trade less because people are always looking for fresh lease term,” says Blankstein.

“Transaction velocity for the remainder of 2020 should continue to favor essential retailers with drug stores being a beneficiary of the increased demand,” Blankstein says.

 

Source: GlobeSt By Les Shaver | November 02, 2020 at 06:30 AM

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* Through September 11, 2020, Includes apartment, retail, office, and industrial sales $1 million and greater Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics, Federal Reserve

Market or MAKE a Market for Your Property

The housing market has found stability in a time of crisis because of the interventions in the CARES Act stimulus, unemployment benefits, and eviction moratoriums.

The cap rates for small multifamily properties barely budged between the first and second quarters of 2020, according to a new report by Chandan Economics and Arbor Realty Trust.

Cap rates narrowed by 5 bps in the second quarter, landing at 5.8%, explained the article, which was published on lender Arbor Realty Trust’s website.

“In the first quarter, cap rates widened by 21 bps, and there was some concern that they would further inch up as the economic downturn continued. However, small multifamily cap rates held steady due to a pricing tug-of-war,” said the article.

Cap rates are influenced both by falling risk-free interest rates, and by operational risks, it explained.

“When both phenomena happen at the same time, the net result is cap rate stability,” said the article.

Chandon examined the difference between cap rates and Treasury yields to estimate what the risk premium is in small multifamily properties. Although the spread was the highest level on record in the second quarter, when you compare it to the first quarter, it barely budged.

The article said the housing market has found stability in a time of crisis because of the interventions in the CARES Act stimulus, unemployment benefits, and eviction moratoriums. But there are repeated debate about how resilient property cash flows will be when the protective measures expire.

For example, one survey in mid-July said that 39% of renters who earn less than $75,000 per year had no confidence or slight confidence that they would be able to pay their rent in August, the article said. That rate was 5% higher than a survey in the middle of June.

In higher income brackets, there is less concern about the ability to pay rent.

“Small multifamily renters tend to earn less than their large multifamily neighbors, increasing the concern for rent collections with this asset class,” said the article. “Simultaneously, small multifamily renters are comparatively less transient and less likely to transition into homeownership over the medium-term. With COVID-19 causing many young households to reconsider their housing location preferences, the small multifamily subsector may prove more resilient in re-leasing and maintaining stable occupancies over the medium term.”

The article warned that because there are so many moving parts, there will be an ongoing discussion about how the small multifamily market deals with the risks, compared with the rest of the industry.

 

Source: Globe St Angela Morris | September 08, 2020, at 05:43 AM

 

Q3 2016 Apartment Trends

  • The national vacancy rate for multifamily properties across Reis’s largest metro markets did not budge from it 4.4% in Q3 2016.
  • Close to 40,000 new units came online in Q3 2016.
  • Demand remained robust enough to absorb the amount of units that are coming online.
  • Asking and effective rents grew by 1%.
  • Year-over-year asking rents grew by 3.9% and effective rents grew by 3.8%.
  • Most expensive coastal markets’ highest priced properties are showing weakness.

 

Q3 2016 Office Trends

  • The national office vacancies remained moored flat at 16% in Q2.
  • Year-over-year office vacancies have declined 40 basis points.
  • Rents began to accelerate but fell back to its average quarterly level at .4% respectively for both asking and effective rents.
  • Year-over-year rents are seem to be healthy, pulling at 2.7% and 2.8%.
  • U.S. economy creating fewer jobs than in 2015 and 2014.
  • Upcoming November elections a determining factor for firms holding off long-term commitments.

 

Q3 2016 Retail Trends

  • Regional malls showed some improvement with vacancies declining 10 basis points to 7.8%.
  • Relatively strong asking rent growth at 0.5%; between 0.3% and 0.5% on a quarterly average asking rent growth.
  • Neighborhood and community shopping centers vacancies rising by 10 basis points ending Q3 at 10%.
  • Asking and effective rents both grew by 0.4%
  • Businesses are pulling back on capital spending and long-term investments, waiting on results of upcoming elections.

 

Q3 2016 Industrial Trends

  • Warehouse and industrial subsector vacancies remained stuck at 10.5% in Q3.
  • Year-over-year vacancies for warehouse and distribution declined by 20 basis points.
  • Asking and effective rents grew by 0.4% and 0.5% respectively, growing 2.1%-2.3% on a year over year basis.
  • Flex/RD showed more activity in Q3, falling 20 basis points to 11.4%.
  • Year-over-year Flex/RD has declined by 70 basis points.
  • Asking and effective rents grew by 0.4%, year-over-year growth in the low 2% range.
  • 75,000,000 SF of new construction for warehouse and distribution for all of 2016.

 

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Source: Reis Nov 3, 2016