With its sandy beaches, rolling mountains, and bustling cities, North Carolina features natural beauty, culture, and industry such as furniture manufacturing in High Point and hi-tech in Raleigh, Durham and Chapel Hill, the research triangle region.
With a population close to 11 million, North Carolina is the 28th largest and 9th most populous U.S. state. Raleigh, the state capital, has a population of about 474,000 people (2.2 million for the entire triangle region), while Charlotte has 870,000 residents. However, recent data collected by the U.S. Census Bureau records that both urban areas rank among fastest-growing U.S. cities.
Forbes ranked North Carolina as the top state for business in 2019. The state has ranked among the top five on the list for 14 consecutive years. The reasons for its top rankings include quality of life, educational and employment opportunities, and the state’s mild climate.
Overview of Commercial Property For Sale in North Carolina
- North Carolina has about 1.6 million commercial properties.
- By volume, vacant land is the state’s largest type of property, making up about 1.2 million of its total parcels.
- The state features about 82,000 multi-family properties and just under 59,000 retail spaces.
- Almost 219,000 of North Carolina’s commercial properties are located in Qualified Opportunity Zones. These zones were created as part of the Tax Cuts and Jobs Act of 2017, and are part of a developmental program that promotes the long-term investment in and development of U.S. low-income urban and rural real estate.
Fast Growth in the Carolinas
In recent years, North Carolina commercial real estate has attracted many out-of-town developers because of the favorable growth trends in the state. The most common reason investors have moved to North Carolina is the region’s job growth and population increases. The Raleigh Metro area’s population grew by 20.5% between 2010 and 2018, the Charlotte Metro area expanded by 15.9% and the Durham-Chapel Hill Metro increased by 13.6%, according to the U.S. Census Bureau.
Commercial Real Estate Trends in North Carolina
In addition, a recent study by PricewaterhouseCoopers (PwC) that revealed emerging trends in real estate Raleigh-Durham and Charlotte were both on the list of the top five U.S. markets. In 2020, Charlotte moved up in rankings from ninth to fourth in overall real estate opportunities and second in terms of homebuilding. But the city also has commercial opportunities. The city is attracting technology and manufacturing companies, and real estate developers specializing in those sectors should have plenty of opportunities in the year ahead.
Charlotte, the state’s largest city, has a diverse mix of both white- and blue-collar jobs. More than 280,000 jobs have been created since 2010 as the metro area has welcomed corporate relocations and expansions such as Honeywell and LendingTree, which combined added 1,000 jobs. With the increase in jobs, there has also been a growth in population as 50,000 people moved to the city in 2019. Overall, Charlotte is a city of sales and office workers, professionals, and managers. Major job categories include management occupations, 11.72%; sales jobs, 11.61%; and office and administrative support 10.81%.
Not surprisingly, wages have also climbed. The per-capita income in Charlotte in 2018 was $34,639, which is $3,902 higher than the median North Carolina per capita income.
Strong economic drivers such as population growth and the expanding corporate presence have been attracting investors to Charlotte. New buyers have been particularly interested in transit-oriented walkable neighborhoods. Investors in search of yield will probably find greater potential for higher returns outside the 485 loop. Older multi-tenant assets with local tenants in Gastonia or Mooresville can trade at cap rates above 8%. Capitalization rate, commonly known as cap rate, is a rate that helps in evaluating a real estate investment. Cap rate = net operating income divided by current market value (Sales price) of the asset. In simpler terms, capitalization rate demonstrates the potential rate of return on the real estate investment.
Nevertheless, one important feature of Charlotte is the car culture—it is one of the most car-oriented large cities in the country. In fact, 82.22% of people commute to and from work every day by private automobile because alternative forms of transportation are not widely available in the city. The landscape around Charlotte reflects this: abundant wide streets, parking lots, highways, malls, and shopping centers. That in turn means that many cars will pass by retail locations daily.
Raleigh/Triangle Research Region
The Raleigh/Durham/Research Triangle Region is considered one of the best places to live within the state. The 11-county combined statistical area (CSA) is projected to have a population of 2.3 million in 2020. The region includes three large, research universities, North Carolina State in Raleigh, Duke University in Durham, and the University of North Carolina in Chapel Hill. These institutions of higher education help to fuel the health care, life sciences and technology industries. The local workforce is highly educated: employees with bachelor degrees make up 45% of the workforce.
The region is a technology mecca and boasts 89,000 tech jobs, which at 10.9% of the employment base, ranks behind Silicon Valley and San Francisco in tech industry share, according to PwC.
In 2019, Raleigh area added 4.7 million square feet of commercial real estate, with about 7.5 million square feet under construction at the start of 2020. The office category led the way with 2.3 million square feet of new development, multipurpose added over 1.9 million square feet and shopping centers added 580,000 square feet, and double that figure is now under construction as of early 2020.
As an example of the interest in North Carolina, a Washington, D.C. based developer PN Hoffman, purchased about seven acres and a cluster of low-slung shops at the north end of downtown Raleigh that comprise Seaboard Station. The developer has a multi-phase plan to grow the shopping center from less than 100,000 square feet to 800,000 square feet. The redevelopment plans could bring approximately 650 apartments, 150 hotel rooms and 90,000 square feet of new retail space. The project involves demolishing some of the existing retail buildings while keeping others.
Investors are also attracted by the low vacancy rates. Investors count on 3% rent increases when underwriting deals.
North Raleigh experienced the most retail growth of any submarket and area-wide vacancy was just 3% at the end of 2019. One of the strongest submarkets is the Cary/Apex/Morrisville submarket with 628,000 square feet of new construction. Projects include Wegmans and other retail spaces at Twin Lakes on Davis Lake Drive.
Other Fast Growing Cities in NC—Wilmington, Asheville and Greensboro
Wilmington is located off the coast and has a diverse, stable economy. The city is a regional hub for key services, explaining why the local health network is one of the largest employers. Unemployment is less than 4%, attracting people from across the region. The town features a UNC college campus and a community college in the city. Businesses in the city include a large telecommunications sector and film and TV industries that use its large sound stages and special effects tanks. Businesses are relocating to Wilmington because of its low cost of doing business.
Other cities in the state are also experiencing growth, including Asheville commercial real estate and Greensboro, which is the state’s third largest city. A few other towns include Benson, Cary, Candor, Canover, Concord, Fayetteville, Goldsboro, Kinston, and Winston-Salem.
Triple Net Lease Agreement Opportunities
With the strong economic growth of commercial real estate North Carolina, investing in triple net lease properties may be a good way to invest in the region’s commercial property. Single-tenant triple net (NNN) properties can provide a consistent revenue stream to an investor’s portfolio through monthly rent payments from tenants. Investors can earn a healthy monthly income for up to twenty years from a creditworthy tenant and realize plenty of capital-preserving benefits.
An important strategy is to invest primarily in retail real estate that is typically well located within each local market for its tenants’ retail lines of trade. These types of NNN properties for sale, i.e., leased pursuant to triple-net leases, provide attractive opportunities for stable current returns and the potential for increased returns and capital appreciation.
Triple net leases typically require the tenant to pay operating expenses such as insurance, utilities, repairs, maintenance, capital expenditures and real estate taxes and assessments. Initial lease terms are generally 10 to 20 years.
However, each triple net lease agreement is unique to the property itself, so there may be clauses outlining specific terms and financial responsibilities of both the property owner and the tenant. If you are purchasing a property net lease agreement already in place, it’s important that you understand all the key elements of the long-term deal that’s been negotiated (and will become yours upon purchase of the property).
Understanding all the intricacies of a triple net lease agreement will ensure that you know exactly what you’re responsible for as the property owner and eliminate surprise costs down the line that could impact the profitability of your NNN property investment.
In evaluating a particular NNN properties there are several important factors to consider:
So, which NNN tenants and properties make these investments such a suitable option? Though many NNN lease investments are high-quality, there are a few factors to consider:
- Reliable long-term income from credit-quality tenants.
- Corporate-guaranteed leases for added reliability and value.
- Recession-proof businesses.
- The ability to evolve with consumer habits and market shifts to stay relevant.
- The location, visibility and accessibility of the property.
- The geographic area and demographic characteristics of the community.
- The local real estate market conditions, including potential for growth, redevelopment, market rents, and existing or potential competing properties or retailers.
Types of Attractive NNN Properties in North Carolina
Family Dollar and Dollar General retail outlets are popular NNN property choices. Dollar General is a steadily growing company, which has been adding about 1000 strategically located properties per year. Dollar General enjoys stability through consistent growth and increasing year-over-year sales, a high rate of return, and needs-based, recession-protected consumer products and services. Family Dollar locations in North Carolina, such as the 15-year-old location in Candor, enjoy a 10% rent increase every five years and the parent company has extended the lease, which demonstrates their commitment to the site. The cap rate is a robust 9.4%. In addition, they are located close to major highways, which is one of the crucial points to consider when investing in triple net properties for sale. Dollar General properties typically command a price of about $1-2 million, while the Family Dollar stores in North Carolina are valued between $700,000-$890,000.
Quick-Service Restaurants (QSRs)
Fast-food, or quick service restaurants (QSRs), continue to thrive—fifty million Americans eat at a fast-food restaurant daily (even during the pandemic)—which makes the industry an attractive investment. QSRs like McDonald’s, KFC, Wendy’s, Burger King and Subway, typically prefer total control of their properties for brand recognition, and offer stable, long-term absolute net-lease investments that generate monthly income. The triple-net leases also generally offer periodic rent increases during 15 to 20 years and no maintenance responsibilities.
Walgreens & CVS Pharmacies
Walgreens and CVS are both low-risk, prime NNN lease opportunities. These retailers make a concerted effort to place their stores on a hard-corner with generous 1- to 2-acre parcels for maximum visibility and property value.
Walgreens is the U.S. market leader with over 8,000 retail stores ranging from 10,800 to 15,000 square feet. To compete with its main rival, CVS, Walgreens is often willing to pay premium rental rates to secure Grade A sites with primary absolute NNN lease terms of 25 years. Investors can expect to pay between $5.5-10 million with cap rates in the 5.25-6.5% range for this highly beneficial, long-term investment. Keep in mind that the difference between what is considered an ‘A’ retail location and a ‘B’ location can be as little as 300 feet. With the right retail real estate characteristics — such as being at or near a signalized intersection and providing easy access for customers — a good location will outlast even the original retail tenant.
Sands Investments offers several commercial properties for sale in North Carolina with desirable geographic characteristics such locations on roads with more than 45,400 cars driving by per day and affluent neighborhoods within close proximity.
Finally, in evaluating any NNN for sale be aware that all credits are not equal. A company’s credit rating is determined by one of the three ratings firms (i.e. Standard and Poor’s, Moody’s, Fitch) and those with a rating of BBB- and higher (S&P scale) are considered investment grade. Historically, the vast majority of defaults have occurred among the lowest-rated issuers. The 31-year average for securities rated AA (the second highest rating) were 0.2%. However, the default rate among B-rated issuers (the second lowest) was 4.28%, but for the lowest tier, CCC/C, the default rate was 26.85%. As a result, it should be no surprise that the higher is the risk of a default (i.e. your tenant going out of business), the higher is the associated cap rate for a property.
Sands Investment Group is America’s fastest growing net lease investment company, with over 2,400 transactions in 48 states (to the tune of $5 Billion) since 2010. Our experienced team of net lease advisors and brokers are experts in the NNN market and can help you find your next best investment opportunity by helping you navigate through all the opportunity and risk factors of every NNN property that meets your investment goals.
Want to learn more? Get in touch with an expert net lease advisor today by calling 844.4.SIG.NNN or sending us an email at info@SIGnnn.com.
If you are interested in viewing our listing inventory in NC, please visit: SIG’S NORTH CAROLINA LISTINGS