The Power of Site Selection
Location, location, location – the age-old mantra for homebuyers around the globe, but arguably more important for commercial real estate investors, including those with interest in the net lease market. With growing demand for net lease properties, individuals and institutions alike will need to assess locations in order to maximize the investment’s success. Location will determine a property’s viability to market to potential tenants, as well as ensure a profitable exit strategy.
Outlook on Demographics
Investors need to take their time in understanding demographics and target market. An outparcel in a retail shopping center will benefit from a densely populated, affluent neighborhood by attracting high-quality tenants and experiencing lower vacancy rates. Proximity to residential areas, business districts, or nearby amenities can significantly impact the desirability of the location.
The economic vitality and job growth in a region play a substantial role in market assessment. Markets with a strong job market indicate high consumption and spending of consumers. Thriving local economies with increased household disposable income is a key metric to determine prime locations that can even lead to rent escalations and increased property value over time.
Accessibility and Visibility
For net lease properties occupied by retail tenants which prosper from visibility and accessibility, location is the most crucial factor. Being located near major roadways, highways, and intersections can enhance a property’s exposure, reassuring customers. Assessing daily traffic count is fundamental, especially for QSRs. Additionally, ample parking and a well-designed entrance can make a substantial difference in the property’s success.
For instance, medical and healthcare tenants’ most important consideration to determine the profitability of their businesses is accessibility. Egresses and parking lots must meet certain accessibility requirements as they are to service patients with impairments.1 Understanding not only the local ordinance, but also the tenant’s needs improves the ability to have fantastic access. It’s very possible to modify existing sites to fit healthcare needs, but a successful location is one-of-a-kind.
Tax Benefits of Markets
Apart from seeking prime locations to attract credit-worthy tenants, investing in specific locations can even achieve certain tax benefits. Many states, specifically in the Southeast region, or along the SunBelt, provide low to zero-income tax, deeming these locations a hot spot for out-of-state investors. Net lease properties in these markets help ease the burden of double taxation while diversifying an investor’s portfolio. States such as Florida, Texas, and Tennessee offer no levy on capital gains.2
Conclusion
The site selection of net lease properties is one of the most critical components in determining forecasted success and profitability. Investors must consider various aspects such as demographics, economic conditions, and accessibility when determining a location that fits their investment strategy. A prime location can attract creditworthy tenants, ensure steady ROI, and contribute to the long-term appreciation of the property’s value.
Given the above, it is essential to consult with an investment advisor to provide an expert understanding of the market and help achieve individual portfolio goals.
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