If you’re considering renting commercial spaces, you’ve likely come across some more complicated lease agreements than you would find in residential properties. Net leases show up frequently in American commercial real estate, and you should know about which industries where you’re most likely to find them.
About net leases
A single-tenant net lease is a lease agreement where the tenant agrees to pay additional costs associated with a property on top of the rent. In a single-net lease, the tenant only pays property taxes in addition to the rent. The landlord will still be responsible for maintenance of the property and any other operating expenses.
A single-net lease should not be confused with other types of net leases, in which the tenant may be responsible for operating expenses beyond property taxes. From a landlord’s perspective, a single-net lease is generally more work than other net leases, but they may agree to it as a compromise with a tenant.
Net-leases are commercial, rather than residential, and they are advantageous for anyone who’s interested in real estate but lacks experience. A net-lease allows the tenant to rent property in a prime location while avoiding much of the hassle a landlord would deal with.
There are many companies that specialize in leasing NNN Properties (triple-net lease), and options reach across a wide variety of sectors. Deal sizes frequently range from $1-5 million, but prices will vary based on property and location.
Retail and convenience stores
While retail real estate is changing, and we’re seeing more stores and attractions combined into single plots of land, net leases for retail properties are still in extremely high demand.
These properties are great for investors due to their passive income streams, and they also tend to maintain their value even as markets shift. This means that sellers have to worry less about being able to lease their properties and more about obtaining the most advantageous terms.
Retail properties are most commonly triple-net leases. An advantage to this for investors is that rent is lower than other leases; investors generally have more control over the management of the property as well. A disadvantage is that the tenant may be responsible for maintenance costs in a triple-net lease, so ensuring that the building is in good shape is important.
Service centers and parts stores are the most common net-leases in the automotive sector. These options tend to be relatively safe investments as far as revenue is concerned.
Investors in service centers will mainly need to be concerned with environmental issues. Improperly disposed oil or other chemicals could be problematic, and tenants from other industries may find the learning curve challenging at first.
Investors are thriving in the medical sector due to a variety of factors. There is a growing demand for medical care as the number of seniors continues to increase. There is also a necessity for face-to-face interaction in medical care, meaning more facilities will need to be built as current ones are pushed to full capacity.
Healthcare spending is projected to increase by six percent per year through 2025. This almost certainly means that institutional investment in hospitals and equipment will continue to increase, and medical clinics in prime locations will become more valuable.
Properties in the medical sector are frequently leased at a slightly higher value than the average property, but they don’t tend to require as many other responsibilities as retail properties.
Quick service restaurants, particularly those that are corporate guaranteed or well established franchises, are extremely popular net-lease options for investors. These properties tend to be long term triple-net leases that leave investors with little to no landlord responsibilities in exchange for higher rent.
These restaurants tend to be located near roadsides, making them attractive for both sellers and investors, as their visibility brings in all interested parties. They are also resistant to trends in e-commerce, as the services of a restaurant can’t be reliably replaced.
Single-tenant net-leases come in wide varieties, and they can be great deals for both new and old investors.