Ask the Expert: In today’s current COVID-19 environment, do you hold or do you sell your retail asset?
It depends on the retail asset class. Single Tenant (NNN) net lease asset cap rates will continue to hold and for certain tenants you could see further cap rate compression. If you have a credit tenant with several years left on the lease it may make sense to hold. All essential retail uses, (drug stores, dollar stores, convenience/gas) will be leading the way in the NNN lease arena. Compressed cap rates could mean better pricing for sellers but finding the next upleg trade property may prove to be difficult since they are in high demand. Uncertainty lies within the multi-tenant strip retail and larger big box (Power) centers. The net operating income (NOI) for the multi-tenant assets is a moving target today, so buyers will be looking for discounts in this space. Seller’s, however, have not adjusted yet to what will certainly be post-COVID-19 pricing. If there is additional tenant fallout or consolidation, over the next twelve months, which is likely, the market will start to see pricing shift and cap rates can be expected to continue to increase for this retail asset class. We have advised specific clients who own multi-tenant assets to take what pricing is on the table now versus waiting six to twelve months in hopes that the economy or pricing improves down the road.