Net Lease Retail Offers Tenants Flexibility

REIT magazine: March/April 2020

The free standing retail sector consists of stand-alone stores located on the street rather than in a mall or shopping center with other retailers. This provides flexibility that allows a tenant to be in a neighborhood where consumers shop, or at convenient spots on major roads and highways, generally with their own parking for easy access.

Many of the tenants in free standing retail are familiar shops like drug stores and convenience stores that carry non-discretionary consumer items that shoppers need to purchase on a regular basis.

Other tenants include services, fitness clubs, movie theaters, and restaurants. Free standing retail has been fairly resilient to competition from e-commerce due to the types of goods and services its tenants provide.

Free standing retail is often called “triple net” due to the structure of the leases. Tenants pay the properties’ operating expenses, including taxes, maintenance, and insurance (so the lease payment is “net” of these three costs).

A triple net lease is attractive to tenants as it lowers the rent compared to a gross lease. There are benefits to the property owner as well, as a triple net lease provides more stable income to the owner. In addition, lease terms are long, often 10 to 20 years, resulting in low vacancy rates.