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Despite the fact that NNN lease properties offer stability and predictable cash flow, the inventory of these properties has increased four out of the last five months and transactions are at their lowest since at least the beginning of 2021.
Some of you might be scratching your head, but this puzzling scenario can be explained by stalling cap rates, which are up 75 basis points and have hovered around 6% for the last five months.
This inventory increase could be a great sign for investors, but signals that sellers need to reassess their pricing and consider price reductions. Demand is down, at least for properties priced the way they are, so we’re seeing the bid ask gap return. This could lead to two different scenarios: sellers stand firm and wait for better pricing while buyers find somewhere else to invest their cash, or sellers reduce the list price to move their property.
The second scenario is currently playing out across many national markets. Chris Lomuto of Northmarq tracked a 25% increase in price reduction emails in October, with a slightly higher number in November.
To me, this indicates that deal flow should increase in the early stages of 2024 as sellers take a rational approach to deal making and reprice their properties according to the market.
Justin Langlois, CCIM is a Commercial Real Estate Advisor with Stirling Investment Properties servicing Baton Rouge, Louisiana and surrounding markets. Please reach out to Justin to discuss your real estate investment strategies.