Multi-Tenant Retail Investment Sales Fared Better Than Single-Tenant in 2023

Different angles on data can bring different analyses of the same time period. That’s important for investors and developers because one part of an overall market may be in much better shape than another. In this case, there’s an interesting comparison between single-tenant and multi-tenant net lease based on two different reports from Northmarq, each focused on one part of the greater market.

The Northmarq report on single-tenant net lease investment sales in 2023 Q4 showed a quarter-over-quarter drop of 31.7% and a 57.9% year-over-year fall. That quarter’s volume was the lowest since at least the opening of 2018. Average cap rates climbed 19 basis points quarter over quarter to an overall average of 6.29% The increase was 62 basis points from the end of 2022 and the figure at the end of 2023 was the highest since at least 2018.

The dollar investment sales were $40.63 in the fourth quarter of last year, the lowest in the five-year period from 2019 to 2024. The cap rate for the year was the highest in that five-year period, but only 8 basis points higher than in 2019.

Now compare Northmarq’s multi-tenant net lease report at Q4. While still a drop from 2022, the numbers are much better than the single-tenant segment. It was 34% higher than Q3, although 28.8% down from 2022 Q4.

On an annual basis, the sales in 2023 were $44.5 billion. That was 37% lower than for 2022 —still a high baseline — but less of a tumble than single-tenant had.

The overall cap rate for multi-tenant was 7.10%, which was 4 basis points up from the third quarter of 2023 and 46 basis points higher than Q4 in 2022.

So, single-tenant had a bigger drop in transaction volume than multi-tenant, but a lower rise in cap rates. Those two comparisons might tie together through the mechanisms of risk expectations and bid-ask gaps.

Single-tenant may have had lower volume movement because the tenants are often of higher credit quality, perhaps part of a national chain, and are more likely to be on longer leases and providing steady income that allows postponement of decisions to sell.

On the other hand, multi-tenant had higher cap rates, which could mean less certainty about the product or possibly a greater inclination to come together on pricing.