A Detailed Look at the Multi-Tenant Retail Space

In our exclusive talk with Stan Johnson Co. associate director, Ryan Roedersheimer, we learn about all things in the net lease space, including an uptick in private investors, single-tenant versus multi-tenant, what subsets are performing well and more.

GlobeSt.com: What is an interesting trend you’re seeing in the multi-tenant retail sector?

Ryan Roedersheimer: In just the past few years, we’ve seen an uptick in private investors that were focused solely on single-tenant retail branch out and expand into multi-tenant product at a more rapid pace as they chase yields. It’s seemingly a natural progression, but prior to about 2015, it was perhaps a bit less common for the private investor segment. As it relates to retail assets specifically, familiarity is why most investors can make the transition from single-tenant to multi-tenant with confidence – the general rules apply to both product types. Of course, there are nuances that will play a role, but if one understands retail and the economic drivers of a location, the investor has a solid foundation to build from and they’ll be able to expand their focus successfully.

GlobeSt.com: What makes multi-tenant retail a good option for net lease investors looking to expand or diversify their single-tenant portfolios?

Roedersheimer: Investors can enjoy better yields and diversification wrapped up into one investment. Not only can they mitigate the risk if one tenant happens to vacate or go out of business, but lease terms are often shorter in multi-tenant properties which may offer an opportunity to push rents higher or replace them altogether. Additionally, when the right mix of tenants comes together in the same center – the combination of a women’s fashion retailer, a jewelry store, and a shoe store, for example – they can leverage each other to drive sales. This creates ‘stickiness’ to the location and opportunities to increase value for all parties. In other words, when a retailer is able to drive value from its neighbor, it increases the chances of the tenant’s longevity.

GlobeSt.com: Which subsets of multi-tenant retail are performing well in today’s environment?

Roedersheimer: Due to what is widely considered to be the greatest transition in the retail industry since the 1950s – primarily driven by e-commerce – opportunities getting the most attention from investors right now are those with service-oriented retailers. Think medical, fitness, nail salons, restaurants, and the like – products and services that you cannot purchase online. Some investors are fearful of which will be the next retailer to fail due to dynamic consumer buying habits, and these internet-proof services help investors overcome their concerns. However, traditional retail is not going away – consumers still want the shopping experience that a brick and mortar store location provides.

GlobeSt.com: What predictions do you have for the next 12-24 months as the market faces a potential downturn?

Roedersheimer: My crystal ball says sales velocity will likely slow, and the gap between bid and ask should widen a bit. Presidential election years can sometimes have a paralyzing effect on the market as folks have unanswered questions about the future. That said, there will still be investors who remain active, but a substantial decrease in buyer demand would lead to higher cap rates. Some sellers will choose to wait it out, but others will be motivated to sell due to uncertainty, loan terms maturing, or other factors unique to their situations. Short-term, however, the U.S. economy remains fundamentally strong and interest rates are extremely attractive. It’s possible that activity will remain robust for some time now, and once we officially enter a recession, it should not resemble what we experienced in 2008 and 2009.