While many types of retail have been devastated by the pandemic, segments of one sector have held up exceptionally well.
“I think if you look at retail in the 21st century, the future of retail is net lease,” Joey Agree, CEO of Agree Realty, a REIT that invests in the space with a focus on retail, said in a recent CBRE podcast. “The future of retail is freestanding.”
The pandemic has highlighted the strengths of freestanding retailers as omnichannel becomes more prevalent as consumers took advantage of stores and restaurants that provided drive-throughs and curbside pickup. “I believe the best retailers in the world will continue to prefer freestanding net lease formats in the future,” Agree says.
In the future, Agree thinks that companies with the balance sheet and liquidity to deliver omnichannel services to consumers will thrive. “What we see today and what our proverbial sandbox focuses on is the 25 to 30 retailers in this country that have the balance sheets and the wherewithal and can deliver that value proposition to a 21st-century omnichannel consumer,” Agree says.
Agree Realty recently invested $475 million in about 95 properties across the country, including TJ Maxx, HomeGoods in Napa Valley, Walmart, Home Depot, Tractor Supply, AutoZone and National Tire and Battery. As many retailers declare bankruptcy, Agree says the strong will get stronger.
“You can see it in their [the strong retailer’s results,” Agree says. “You can see it in their sales per square foot. And they’re able to afford a consumer, a total omnichannel experience, whether it’s shop and store, buy online, pick up in-store or deliver that last mile, which is very expensive, to people’s houses.”
But net lease space that houses essential retailers, like drug stores and drive-through restaurants, isn’t the only attraction.
Will Pike, vice chairman and managing director of the Net Lease Property Group for CBRE, says the demand for net lease office is still really high. “When you look at the broader office market, I would venture to say that it is the most highly traded asset within the office sector,” Pike noted in the podcast.
If the tenant is investment-grade or has a compelling story, Pike says the pricing in net lease office is very aggressive. In fact, he sees record-breaking prices with net lease as they’re the most highly traded assets within the sector.
“What we see on the ground is still very healthy,” Pike says.