Colliers Report: First half 2020 net lease sector volume slows due to Coronavirus restrictions

Research & Forecast Report
Q1-2020 SOUTH CAROLINA | SINGLE TENANT NET LEASE

COVID-19 restrictions allow some retailers an opportunity to revamp their operations

Sales Recap: H2 2009-H1 2020

• Since the second quarter of 2009, drug stores sales volume was the highest of all of the sectors with approximately $400 million in sales transactions.
• From the second quarter of 2009 to the first quarter of 2020, dollar stores lead the South Carolina single tenant net lease market in number of sales. There were 176 dollar store sale transactions during the first half of 2020 throughout the state.

First Half 2020

• There were 15 overall sale transactions throughout the state during the first half of 2020.
• QSR/Fast Food led sale transactions in South Carolina, completing six sales during the first half of 2020; however, due to the Coronavirus restrictions placed on businesses in March, many retailers were forced to close temporarily to ensure the safety of customers.

COVID-19 deems businesses essential

As Coronavirus was responsible for a large number of retail closings, new bankruptcies and retail changes, a newer term is taking the reigns as investors look to place capital: essential businesses. Those stores that were deemed essential have seen more growth in sales than anticipated and include businesses like grocery stores, pharmacies and convenience stores. Prior to the virus taking over the economy, there was strong demand from investors for assets with investment grade credit. Combining a strong tenant with the essential business label is going to be a desirable pursuit for many buyers in the coming months.

Essential retailers have added several safety measures to raise the comfort-level of their clients such as: altered spacing between dining tables so they are further apart from each other upon reopening; added areas for inside pick-up kiosks affording less one-on-one interaction with employees and other customers; constructed partitions between employees and patrons to limit the spread of germs; installed no-touch automatic entry systems and added delivery services and/or drive-thrus to their shops. Other retailers have increased their online presence making it possible for customers to order and receive curbside delivery to their vehicles. All of these new structures were implemented with the hope that customers will feel comfortable either shopping during the lockdown or returning to their shops and restaurants when the quarantine is lifted.

Many investors seeking these investments are in 1031 Exchanges which have been the biggest drivers in transactions. As a result of the Coronavirus, investors received an extension until July 15 to close on a deal if either the 45-day sale agreement or 180-day closing deadline was scheduled to expire anywhere from April 1 to July 15 of this year. One of the biggest transitions we are seeing is the new-found demand for drugstores like CVS, Walgreens and Albertson’s. Investors were beginning to pull away from these type of assets because of corporate decisions to close many of their stores.
Although it may be too soon to tell exactly what the impact of COVID-19 will be on cap rates, we can expect the decline in transactions may lead to a period of cap rate decompression.

A Note Regarding COVID-19 

As we publish this report, the U.S. and the world at large are facing a tremendous challenge, the scale of which is unprecedented in recent history. The spread of the novel Coronavirus (COVID-19) is significantly altering day-to-day life, impacting society, the economy and, by extension, commercial real estate.

The extent, length and severity of this pandemic is unknown and continues to evolve at a rapid pace. The scale of the impact and its timing varies between locations. To better understand trends and emerging adjustments, please subscribe to Colliers’ COVID-19 Knowledge Leader page for resources and recent updates.