PREDICTIONS FOR THE SINGLE-TENANT NET-LEASED MARKET IN 2022
Based upon the momentum that we saw in the last half of 2021, and a record year for Hanley Investment Group, we expect that demand for single-tenant net-leased retail investments occupied by national credit tenants that have a long-term lease in locations with good fundamentals, particularly in the category of essential retail and states with no state income tax, will remain strong. Brand-new construction, especially drive-thrus (i.e., coffee, fast-food and quick-service restaurants), convenience stores with gas stations, express car washes, auto parts and services stores, child care and grocery stores will continue to be the most sought-after tenant types in 2022.
With over $1 billion in retail sales in 2021, the team saw an unprecedented amount of demand for single-tenant express car washes as buyers looked to take advantage of the bonus tax depreciation benefits by year-end. The team has closed or is scheduled to close 18 single-tenant car wash properties in 4Q 2021. In the child care category, we closed a total of 10 single-tenant properties leased to tenants including The Learning Experience, Kiddie Academy and O2B Kids in 2021. Hanley Investment Group also sold 13 7-Eleven properties totaling over $58.3 million and 18 Starbucks drive-thru investments valued at $72.2 million, most at historic record pricing in 2021.
In 2022, we anticipate seeing more shopping center owners considering a break-up sale strategy to capitalize on the high demand for single-tenant and multi-tenant retail pad product. The value in implementing this strategy can result in up to a 200-basis point spread in cap rates (or increased value) when selling the net-leased-occupied out-parcels or pads off separately. (The adage of “the sum of the parts is greater than the whole” continues to be true in these cases as demand for retail net-leased investments priced under $10 million is experiencing the greatest demand and we expect this demand to persist well into 2022.) In 2021, Hanley Investment Group sold more than 200,000 square feet of retail space in nine major shopping center break-up plays, many of which were single-tenant properties. We anticipate bringing at least 40-50 or more single-tenant and multi-tenant pad properties to market in 2022 that are the result of implementing break-up sale strategies at multiple large shopping centers across the country.