One metric that Calkain uses to partially measure supply in the market is the change in average lease years remaining at the time of sale on a quarter-by-quarter basis. An increase means the mix of properties being sold is newer, which could be caused by several things, however in our experience it's primarily due to new construction.

The chart below shows changes in the average number of lease years remaining at the time of sale by tenant category between Q1 and Q2 2015. Across all property types, the supply of newer properties appears to be flat, increasing a sparse +0.1 years. Certain sectors, however, experienced rapid change. Dollar Stores overall increased +0.9 years, and Dollar Generals specifically increased +1.5 years, driven by a surge in newly constructed properties coming to market. Pharmacies were down -1.5 years as new store development slowed for CVS and Walgreens and older Rite Aids comprised a larger portion of the sector.

Banks as a category experienced the largest change, +3.2 years. However the number of banks trading is usually a small portion of the overall market and therefore as a category it is more sensitive to any changes in the demographic makeup of the properties trading in that vertical. We haven't seen a large expansion in new locations for any major bank, suggesting this change is being driven by existing properties coming to market for the first time.

More detailed analysis for pricing and supply trends will be available in our forthcoming 2Q15 Cap Rate Report.

Instant Insights /

Net Lease Properties and Supply Growth: The 2nd Quarter in Review

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