VERSAL closed the sale of Spartan Storage in Montgomery, Texas.

Montgomery is 43 miles northwest of downtown Houston. The property has 64 units. The facility’s total square footage is 19,998 squre feet.

The VERSAL team represented the buyer in thesale, Lakewood Realty Investments, LLC. Ryan Dooley of CRD Realty represented Spartan Storage, LLC, the Texas-based seller.

JLL announced today that Chint Power Systems, a leading solar inverter manufacturer and distributor, has leased 76,433 square feet at Wylie Business Center in Wylie, Texas.

With this lease signed, the Class-A, new-construction industrial facility now has 197,983 square feet available of prime industrial space for lease.

JLL’s Kurt Griffin, Nathan Orbin, and Dalton Knipe represented the owners, Lovett Industrial and Cresset Real Estate Partners, while Mercer Company’s Christian Moore represented the tenant, Chint Power Systems.

Located at 2801 N. State Highway 78 in Wylie, the recently delivered building provides tenants with direct access to SH 78, proximity to a robust labor base, multiple access points, the ability to secure a truck court, close proximity to KCS Intermodal, a substantial 342,000 lift capacity, and access to heavy power. In addition, the state-of-the-art rear-load facility features a 36’ clear height, a 7” reinforced concrete slab, 55 dock-high doors, 185’ truck courts, 80 trailer stalls, and 154 car parks.

Cresset Real Estate Partners, a Chicago-based real estate investment firm with $4 billion of gross assets under management across industrial, multifamily, and office investments, partnered with Lovett Industrial on the development of the Wylie Business Center. 

Chint Power Systems is anticipated to occupy the building in Summer 2024.

Dallas-based Apricus Realty Capital expanded its industrial outdoor storage portfolio with the acquisition of 9987 Wallisville Road in Houston.

The 8-acre parcel provides fully secured truck parking for a freight logistics operator alongside a truck-servicing facility and office building.

Acquired in a programmatic joint venture with ABR Capital, Apricus was self-represented by Managing Principal Matt Haley, Vice President Garrett Marler and Associate Cort Martin.

This IOS acquisition follows Apricus’ most recent purchase of 12400 and 12402 Taylor Road in Houston.

A slow recovery in the office sector? It’s better than no recovery at all. That’s the takeaway from VTS’ fifth annual Global Landlord Report released in early April.

And here’s the best news from the report: VTS says that more than 80% of office landlords surveyed said that they have seen an increase in lease renewals.

According to the latest VTS Office Demand Index, the national demand for office space marked its sixth consecutive month of annual growth in March. And VTS’ 2024 Global Workplace Report showed that 62% of companies are following a hybrid work strategy in which their employes work part time in the office and part time remotely.

This indicate a slow but steady recovery for the office market, according to VTS officials.

“We are witnessing a conviction for a strong return-to-office in 2024 in contrast to years prior, and while positive for the market, it is becoming increasingly crucial for landlords to remain competitive to meet the evolving demands of tenants for enriched, interconnected workspaces,” said Nick Romito, chief executive officer of VTS, in a statement.

Romito said that by putting the needs of their tenants first, office landlords are seeing more stickiness in leases, with fewer tenants leaving for better opportunities.

The VTS report highlights the top priorities and concerns of office landlords across the globe. According to VTS, office landlords this year are more concerned with boosting lease renewals by improving their tenants’ experiences than they are with leasing vacant space.

A total of 57% of respondents in VTS’ report said that they are focusing on retaining current tenants. How are they doing this? A total of 56% of landlords surveyed said that they are boosting their property management services and taking steps to enhance the experience of their tenants.

According to the report, landlords are twice as focused on property improvements this year as they are on portfolio diversification. The evidence for this comes in how office landlords are spending their dollars.

VTS found that landlords are increasingly investing in tenant experience technologies (cited by 33% of respondents), outdoor communal areas (31%), property operations (30%), food and beverage concepts (27%) and fitness centers (27%).

These efforts seem to be paying off. VTS reported that 82% of landlord respondents said that they are already seeing the length of office lease renewals either increasing or holding steady.

Another key finding from VTS’ report? Most landlords — 84% — said that they expect to invest more in technology in 2024 when compared to 2023. Only 4% told VTS that they expect their investment in technology to decline.

Property management software ranks as the top tech investment for landlords, with 44% of survey respondents citing it as their most important piece of technology. Next came leasing and asset management platforms, cited as a top investment choice by 33% of respondents, and digital marketing software, listed as a top choice of 26% of respondents.

In 2022, VTS found that only 4% of landlords were utilizing digital marketing software. That number spiked to 26% in 2024.

Social media ranks as the most powerful channel that office landlords use to find new commercial real estate tenants, with 33% of respondents saying that they have success with this method. On the other end of the spectrum? Landlords said that digital ads are the least effective method of finding new tenants.

VTS reported, too, that 34% of landlords spend more than $50,000 annually to create, maintain and update their digital web properties across their portfolio.

As in most industries, AI is expected to play an increased role in helping landlords manage their office properties. VTS reported that 45% of surveyed landlords said that they expect AI to help them make portfolio decisions, assist them in saving money on the operations of their properties and boost their marketing efforts.

Higher interest rates continue to slow the number of investment sales in the net lease sector. And this trend won’t change until the Federal Reserve Board finally begins lowering its benchmark interest rate.

That’s one of the big takeaways from The Boulder Group’s 1^st Quarter Net Lease Research Report that the brokerage released in early April.

According to The Boulder Group’s report, cap rates in the single-tenant net lease sector increased for the eighth consecutive quarter within all three major net lease sectors in the first quarter of 2024.

And where do these cap rates stand as of the end of the first quarter? Single-tenant cap rates increased to 6.42%, a jump of seven basis points, for retail; 7.60%, or five basis points, for office; and 7.02%, two basis points, for industrial.

“Cap rates in the first quarter of 2024 represented the highest levels since 2014 for single-tenant retail properties” said Randy Blankstein, president of Wilmette, Illinois-based The Boulder Group. “However, cap rates for single-tenant retail and industrial assets remain lower than their 20-year historical average by approximately 40 basis points.”

Like all commercial brokers, those specializing in net lease brokerage are waiting anxiously for the Federal Reserve Board to lower its benchmark interest rate. This hasn’t happened yet. And until it does? Don’t expect sales activity in the net lease space to rise significantly.

“Elevated interest rates continue to impact transaction volume, which is lower than prior years” said Jimmy Goodman, partner with The Boulder Group. “A lack of 1031 exchange buyer activity is resulting in an increased supply of net lease properties on the market.”

The slowdown in net lease sales has resulted in an increase in available properties. The Boulder Group reported that property supply in the single-tenant sector increased by more than 9% in the first quarter of 2024 when compared to the last quarter of 2023. With limited transactions occurring, properties continue to be added to and remain on the market, according to The Boulder Group’s report.

Despite the headwinds in the market, certain sellers including merchant builders or owners with upcoming loan maturities, look to meet market pricing.

“Net lease retail properties with the largest supply — dollar stores and drug stores –continue to experience the greatest cap rate expansion,” said John Feeney, senior vice president with The Boulder Group. “Both of these sectors experienced double-digit cap-rate expansion in the first quarter of 2024.”

After multiple Federal Reserve meetings without any interest rate relief, investors will be monitoring upcoming rhetoric from the members of the Federal Reserve, the Boulder Group said.

As the company’s report says, any cuts to interest rates would be welcomed by net lease owners looking to refinance or sell properties before the end of the year.

There is hope, too, that sales activity will increase in the next six months. The Boulder Group said that with the stability now in the capital markets, the expectation from market participants is for increased transaction volume in the second half of 2024.

However, an increase in transaction volume without a cut in interest rates? It would be a small increase, not anywhere near a surge, with The Boulder Group predicting that net lease transactions are not expected to end 2024 anywhere near the amount of activity the sector saw in prior peak markets. Including recent ones in 2020 and 2021.

By understanding the needs and preferences of the typical U.S. consumer, the most successful retail brands have evolved to deliver on these expectations. Today, significant expansion is underway across several diverse retail sectors including automotive, discount and dollar stores, fitness and sporting goods, and, of course, the dynamic restaurant industry.

While expansion in these categories isn’t necessarily a new trend, there have been some recent announcements that promise to contribute even more substantial growth than originally anticipated. Conversely, a handful of retailers have also announced consolidation strategies that could present some challenges in the coming months and years.

Announcements from these retailers aren’t just headlines though. Developers, potential investors, and current owners rely on these plans to help form their own strategies, drive investment decisions, and identify both obstacles and opportunities across the market.

U.S. consumers love a bargain

The allure of a great deal resonates deeply with most U.S. consumers, and many retailers cater to this preference by offering coupons, discounts through loyalty programs, or even structuring their entire concept around discounted merchandise.

In recent years, escalating inflation has caused consumers to cut back on discretionary spending, and shoppers are now pinching pennies on even the most essential goods and services. Not surprisingly, retailers that cater to the cost-conscious consumer are some of the brands growing the fastest.

• Dollar General recently reached 20,000 total locations and is planning an additional 800 new stores in fiscal year 2024.
• ALDI successfully acquired Southeastern Grocers and will add 800 total locations to its footprint through new development and rebranding by year-end 2028.
• In April, Target will launch a new fee-based membership loyalty program, presumably to compete with Walmart+ and Amazon Prime, and in recent months it announced its intent to continue exploring large format new store development, which contradicts the downsizing trend we’ve seen across other brands.
• Five Below plans to exceed last year’s growth by opening up to 235 new locations during fiscal year 2024, putting the discount brand on target to reach its goal of 3,500 total stores by 2030.

U.S. consumers value convenience

Convenience remains a cornerstone of the consumer experience, but convenience extends beyond just products. It encompasses ease of access, swift service, and helpful technology among other characteristics.

From one-stop shopping destinations to grab-and-go offerings, retailers that promise a speedy and efficient experience are gaining market share as brand loyalty rises. The availability of self-checkout kiosks, mobile apps that allow ordering on the go, and multiple drive-thru lanes to ensure quick service all combine to deliver a convenient experience that consumers crave, which is helping to drive not only growth across the sector but additional innovation, too.

• Sheetz & Wawa: More than 1,000 locations are planned long-term by these two rapidly growing gas station and convenience store brands.
• Take 5 Oil Change, the “stay in your car” oil change pioneer, embodies convenience and speed, and recent growth has taken the brand beyond 1,000 locations, with long-term plans calling for 150 new locations to open each year.
• In the growing “medtail” space, Aspen Dental has emerged as a provider of choice, offering appointments and locations that are more convenient for some patients than a traditional dentist can offer.
• Chipotle Mexican Grill & Chick-fil-A: Both brands have embraced unique drive thru concepts, relying on mobile ordering and multiple pick-up lanes. It’s estimated that more than 80% of all new Chipotle stores will feature Chipotlanes, while nearly all Chick-fil-A stores will include a double or triple lane drive-thru to accommodate high volumes.

U.S. consumers are investing in their well-being

Following the pandemic, consumers have increasingly been focused on personal wellness, and this has become a driver of growth for retail brands offering health-centric goods and experiences. From fitness centers promoting active lifestyles to grocery stores and restaurants offering organic and healthy food options, consumers are actively seeking out brands that align with their goals and preferences.

According to McKinsey & Company, the U.S. wellness market has reached $480 billion and is growing at a rate of 5 to 10% each year. Retailers who deliver health-conscious goods and services are capitalizing on this growth and many are looking to expand in the coming year and beyond.

• Built on a reputation of being a “judgement-free zone,” Planet Fitness has seen tremendous growth in recent years, and expects to add another 600 locations globally in the next three years to reach a total of 5,000 club locations.
• With up to 140 new stores planned in the next few years, Academy Sports + Outdoors sees an opportunity for significant expansion as it works to capture market share from primary competitors in this growing space.
• While not the fastest growing grocery concept, specialty brand Sprouts Farmers Market has a target demographic that values healthy and fresh offerings, and they expect to reach a broader consumer base by opening 35 new stores in 2024.

For more information about these retailers and other top brands, read Northmarq’s Q1 2024 Top 100: Tenant Expansion Trends report.

Lanie Beck is senior director of content and marketing research at Northmarq.