NNN Dollar Stores
The dollar store sector forecasts new U.S. opens upwards of 24,000 locations in the next 5-10 years. Thus, NNN investors are increasingly demanding these investment properties, especially in the bigger NNN markets in the country. New construction NNN dollar store investment properties will continue to be popular with 1031 investors who are looking for 25 – 30 year lease terms for cash flow.
Cap rates are constant at about 7% in the NNN dollar store sector. This sector’s bellweather proxies are Dollar General, Dollar Tree and Family Dollar properties, as these are the largest tenants in this NNN sector.
Dollar stores in more populated markets demand premium pricing due to their stronger real estate fundamentals and greater backfill potential. Dollar General NNN properties with population of 35,000 within five miles comprise only 20% of the Dollar General supply on the market. These properties command an average 6.5% cap rate, which represented a 75 basis point premium over all other Dollar General NNN investment properties.
Single tenant net lease dollar stores continue to be in demand with private and 1031 exchange buyers. These assets offer investors long term leases to investment grade tenants at rates of return well above risk adjusted market averages.
Statistics of note: average cap rates in the dollar store sector range from 6.5 – 7.0% for base lease terms over 10 years. Dollar General has a stable rating of BBB while Dollar Tree is also stable at BBB- and both companies have over 15,000 stores, while Family Dollar has over 5,000.
NNN Auto Parts
Advance Auto Parts, AutoZone and O’Reilly Auto Part account for the highest percentage of single tenant transactions of properties occupied by auto parts retailers. However, the majority of the Auto Parts sector is comprised of Advance Auto Parts NNN properties which trade at a stable cap rate of just under 7%. In contrast, cap rates for AutoZone and O’Reilly Auto Parts properties are compressing to 5.5% and 5.9% respectively. Despite the increase in cap rates, the median lease term remaining for the net leased auto parts sector increased by 1 year. The median asking cap rate for Advance Auto Parts is highest amongst its NNN peers.
Demand for auto parts from consumers, garages and service stations should continue to grow since the average age of vehicles on the road is increasing and currently is at 12 years. The low absolute price point of properties within the net lease auto parts store sector make these investments highly attractive to NNN investors. Outside of dollar stores, there is a scarce supply of NNN properties trading under $2 million AND leased to investment grade tenants. Plus, auto parts stores are typically located in primary markets and their store are easiest to backfill.
Statistics of note: O’Reilly and Autozone Stores trade for around $2.0MM, while Advance NNN trade in the $1.5MM range. Cap rates for lease terms of more than 15 years, for all average between 5.0 – 5.5%, whilst short term NNN in the auto parts sector trade between 7.0-8.0% cap.
Interested in NNN Dollar Stores or NNN Auto Parts properties? Contact the experts at The Triple Net Investment Group Today.
