Collision Centers 2024 Performance
The Year of Distractions
Overall, 2024 could be characterized as a year of distractions, with notable themes like elections, rate cuts, CPI and job reports, elevated interest rates, and geopolitical risks. Despite receiving 75 basis points in Federal Fund rate cuts, the 10-year Treasury yield has remained notably steady. The current rate hovers around 4.25% as of Q4 2024.
Over the year, the 10-year Treasury exhibited a 52-week range of 3.597% to 4.741%. However, only a limited number of net lease transactions were observed with secured financing in the 5% range.
Supply and Demand
The single-tenant net lease (STNL) market has experience significant changes over the past two years. A recent study reveals a 168% increase in STNL inventory, rising from $9 billion to over $24 billion—a remarkable surge in supply. This influx has contributed to a steady increase in cap rates by over 80 basis points. Despite these rising cap rates, transaction volumes remain subdued, falling below pre-pandemic levels as capital markets continue to recover. For perspective, the average quarterly transaction volume for single-tenant retail before the pandemic was approximately $5.7 billion. In contrast, Q2 2024 saw an estimated $2 billion in transactions, marking a 65% decline from the pre-pandemic average. These trends highlight the ongoing shifts in the STNL market and underscore the need for Strategic navigation in today’s evolving commercial real estate landscape.
Big 4 Collision Recap (Caliber Collision, Crash Champions, Classic Collision, Gerber Collision)
The market for collision repair investment properties is showing positive momentum, with transaction velocity steadily increasing throughout the year. This growth provides valuable insights and new data each month. It also aids in a better understanding of evolving value trends for this product type.
NN+ vs Absolute NNN Comparisons
One topic that drew attention this year is the different lease types that these major collision brands sign and how the landlord’s responsibilities can influence the value. Absolute NNN leases and NN+ leases differ in terms of tenant responsibilities. In an absolute NNN lease, the tenant assumes full responsibility for all property-related expenses. This includes taxes, insurance, maintenance, and repairs, providing the landlord with a completely passive income stream. In contrast, NN+ leases shift most expenses to the tenant, but often lease the landlord responsible for certain costs, such as roof or structural maintenance. While both offer attractive investment opportunities, absolute NNN leases typically appeal to those seeking minimal involvement. In contrast, NN+ leases may offer slightly higher returns to compensate for the landlord’s obligations.
The data reveals a nearly 90-basis-point difference in cap rates between NN+ and NNN transactions this year. This translates to a $241,005 price variance for a property with $100,000 in rent. One key factor influencing this disparity is the lease term of the properties sold. Many NNN transactions involved build-to-suit (BTS) Caliber Collision locations with longer lease terms, while NN+ leases had an average of just 6.23 years remaining. The average cap rate for NNN transactions adjusts to approximately 6.86%. This is excluding the BTS or retrofit Caliber Collision deals with 14-15 years of remaining lease terms. These distinctions emphasize how lease terms significantly impact valuation in the collision repair investment market.
Looking Forward
Looking ahead to 2025, the net lease commercial real estate market is poised to navigate a dynamic landscape shaped by evolving economic and capital market conditions. With interest rates stabilizing and investor sentiment gradually improving, transaction activity is expected to rebound as confidence in long-term investments strengthens. Cap rates may continue to adjust modestly upward, influenced by residual supply from the 2024 market and demand from investors seeking stable, income-generating assets. Additionally, sectors like healthcare, automotive services, and essential retail are anticipated to drive strong interest, given their resilience and consistent performance. While challenges, such as fluctuating financing costs and economic uncertainty, remain, 2025 holds potential for strategic growth opportunities—particularly for investors who prioritize long-term stability and diversified portfolios.
