Everyone knows the common saying that location is everything.
But what does that mean? And what factors do serious investors look at to determine whether a particular triple net property location is a good one?
A prime triple net property location doesn’t guarantee that a business will succeed, but it can go a long way towards ensuring a business – and in turn, your NNN property has a good chance of doing so.
Here are four factors to evaluate before you consider purchasing a triple net lease property.
The demographics of a particular area will have a major impact on the success of the business. Specifics like average household income, for example, will help determine whether or not prospects are able to afford the product being sold.
Other factors, such as consumer spending patterns, daytime population, average age range, and whether or not the neighborhood is aging or growing, help companies put together a complete picture of consumers wants and needs.
Since large companies have very sophisticated data on who their target customer is, they can use this information to pinpoint whether or not the people in a particular area are likely to purchase their product, how often, and other key factors.
Unfortunately, however, while understanding the demographics of an area is extremely important, it’s not always foolproof. That’s because while a specific triple net property location may have potential, other factors, such as a large company in the area closing (thereby causing the loss of jobs), a major competitor entering the arena, or changing consumer trends, can still have a significant impact.
Demographics also help companies determine whether or not there will be sufficient workforce in the area to support their business. This is especially important for industrial properties, who generally require a larger workforce than some retail establishments.
Traffic patterns help investors and business owners evaluate whether or not there is enough vehicular traffic to support their business. But evaluating traffic patterns involves more than counting the number of cars that go by.
There are five different data points that should be examined when performing a traffic count:
- Traffic volumes in front of the triple net property location
- Traffic volumes near the triple net property location (evaluators choose a specific point, such as a nearby access road)
- Traffic volumes according to the time of day
- Traffic volume of people traveling to a competitor
- Traffic volumes by direction
It’s also essential that you have an idea of who the travelers are. The assumption is that if there is enough traffic, nearby businesses will have more customers, but this only holds true of those traveling through or in the area fit the customer demographics.
So for example, if the area is a new one and has plenty of young families, but the traffic going by is in their 50s and 60s, a Toys R’Us might find itself struggling.
Property access refers to whether or not there is a road leading to the property. However, it’s not enough for a commercial property to have a road to the parcel; the road must be insurable as well.
Insurable access means the property must have legal deeded road access.
When the property is next to a public road or highway, or if there are recorded easements, then this isn’t a problem, but if it lacks frontage on a public road, then investors should try to have deeded easements across all properties between the main property and a public road.
e frontage on a public road, a best practice is for it to have deeded easements across every property between it and the public road.
For certain types of commercial properties, such as industrial, access might also include access to transportation hubs such as air, interstate, rail, and port. These B2B businesses are less concerned with traffic count and demographics, except where employee availability is concerned.
For B2C businesses, visibility is critical, particularly for stores new to the area. Store signs should be readily visible, and the store must be seen from the flow of traffic.
Closely tied to visibility is the cluster of stores that surround the property.
Not only does a group of stores bring create more traffic, but it exposes your store to potential customers and creates a buying atmosphere in a way that can’t be replicated by a stand-alone store.
This is especially true considering the consumer trend towards viewing shopping as an experience, not just a destination.
Additionally, you’ll also want to make sure the businesses surrounding the potential property complement each other. The target audiences should be similar – for example, a hardware store and auto store would complement each other, while a women’s upscale clothing store and the auto store would not.
Zoning & Title Surveys
Zoning laws can affect the kind of business a property is allowed to host, as well how the business is run, so it is a wise idea to check local zoning laws before you purchase a triple net lease property.
This can make a difference if you’re considering a multi-tenant retail property that is not at full capacity. If the law states that a particular area may have only X amount of retail space, and before you fill your vacancies other stores open up in the area, then you might be prevented from adding more retail space to the property.
In order to ensure everything is above board, you’ll want to make sure you get a zoning verification letter from the local municipality stating that all the information listed for that property is complete and correct.
In general, the fewer zoning laws there are, the better. It can sometimes be difficult to get zoning laws changed, so if the success of the property you’re considering depends on a change in zoning restrictions, it would be wiser to simply pass on the opportunity.
There are several factors an investor should investigate before buying a triple net. Some of them will be beyond your control, but doing due diligence on as many as you can help you make the best decision about the profit potential of a property.