Triple net lease (NNN) financing has emerged as a pivotal trend in the retail sector, offering a unique blend of stability and flexibility for investors and developers. As commercial real estate continues to evolve, NNN leases provide an attractive model where tenants assume responsibility for property taxes, insurance, and maintenance, significantly reducing financial risk for landlords. This arrangement not only ensures a steady income stream but also aligns with the growing demand for scalable and sustainable building projects.

The latest trends in NNN lease financing reflect a shift towards more innovative financing structures, driven by a need for greater efficiency and adaptability in an ever-changing market landscape. Below are three trends Peachtree is seeing in the marketplace, as well as in our deal flow.

Supply and Demand Imbalance

As of Q1 2024, single-tenant retail development volume remained low. Rolling four-quarter completions totaled only 19.5 million square feet, which is 68% of the 10-year average (CBRE).

National tenants with strong credit have detailed expansion plans to grow their store fleets:

 
• 7-Eleven (A-rated credit) plans to add 7,000 stores over the upcoming years.
 
• Chipotle (strong private credit) plans to add 300 stores in 2024.
 
• Tractor Supply Company (BBB credit) plans to add 70 stores in 2024 and 90+ in the following years.
 

Flexibility in Lease Terms

Tenants are becoming more flexible with their lease terms in this inflationary and high-interest rate environment to help encourage development and provide buyers with more attractive assets. For example:

• Starbucks has increased the primary term on some build-to-suit leases from 10 to 15 years.
• Dollar General, which traditionally had a flat lease structure, has begun incorporating 5% rent bumps in their primary term.

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Preference for Small Spaces

A significant trend in the retail sector is the preference for small spaces under 2,500 square feet, which make up over two-thirds of executed leases. Consequently, quick-service and fast-casual restaurants, which typically fit within this size range, have reported nearly 2,000 potential openings in 2024. This includes popular chains such as McDonald's, Chipotle, and Dutch Bros. (JLL).

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What we are Seeing at Peachtree

Peachtree Group funds muti- and single net lease deals in retail, medical and industrial. Peachtree is seeing a variety of projects across the spectrum, from standalone quick service restaurants to grocery anchored centers. Currently, our team is favoring deals with experienced developers and strong national tenants.

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Why Peachtree?‍

• Flexible Financing Options: Multiple and single net lease financing across retail, industrial, and medical
• Innovative Solutions: Flexible capital to support complex deals.
• In-House Loan Servicing: Dedicated servicing for a streamlined process.

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To learn more or get a quote, contact us at lending@peachtreegroup.com.