The world of commercial real estate financing is constantly changing, and NNN (triple net) financing has experienced rapid expansion in recent years. NNN properties, also referred to as “net-lease” properties, are those where the tenant is liable for all expenses besides just the rent, such as maintenance, insurance, and property taxes. Given that it offers greater expense predictability and stability, this kind of financing can be a great choice for both landlords and tenants.

It is important to think about trends and predictions for the future of NNN financing as we look toward the future.

A rise in the demand for NNN properties

The rising demand for NNN properties is one trend that is most likely to last in the coming years. More businesses are seeking stable and predictable costs as the economy works to recover from the effects of the COVID-19 pandemic. NNN properties deliver exactly that because all extra expenses related to the property are covered by the tenants. E-commerce growth has also increased the demand for distribution and fulfillment centers, which are frequently NNN properties.

Added variety in NNN property types

NNN properties were previously primarily restricted to retail properties like strip malls and shopping centers. To diversify the kinds of properties that can be regarded as NNN, there has been a growing trend in recent years, though. This extends to commercial and residential real estate as well as office and industrial buildings. As long as this pattern holds, a greater variety of property types will probably qualify as NNN in the future.

Increased reliance on technology

In all facets of commercial real estate, including NNN financing, technology is becoming more and more significant. The use of technology in the NNN financing process is likely to increase as more landlords and tenants move their transactions and communications online. Technology will continue to simplify the process of NNN financing, from online portals for lease agreements and payments to virtual tours and inspections.

A rise in products that are NNN-hedged to inflation

Investors are searching for strategies to guard against possible financial losses because an increase in inflation is a possibility. NNN products that are specifically made to be inflation-hedged should therefore become more prevalent, as expected. With the help of these products, which frequently involve raising rent to keep up with inflation, both landlords and tenants may be shielded from suffering monetary losses.

ESG factors

Investors are giving environmental, social, and governance (ESG) factors more and more weight, and this trend is likely to continue. As a result, we should anticipate seeing more NNN properties built from scratch or renovated to meet specific ESG requirements, like energy efficiency, water conservation, and sustainable materials. Additionally, landlords and tenants may give greater weight to a property’s social and governmental features, such as its proximity to public transportation and accessibility for people with disabilities.

Flexibility and Adaptability

The COVID-19 pandemic has brought attention to the need for commercial real estate’s flexibility and adaptability as businesses were compelled to make quick adjustments to remote work and other changes in how we live and work. More NNN properties are likely to be created with this in mind in the future. More open floor plans, shared areas and resources, as well as a technology infrastructure that will support hybrid working models, could all be examples of this.

Impact of Interest Rates

The future of NNN financing may be significantly impacted by interest rates as well as other factors. Demand may rise as a result of low interest rates making financing NNN properties more accessible to landlords and tenants. But if interest rates start to increase, financing NNN properties might become more pricey for landlords and tenants, which might slow the market.

Heightened competition for top assets

As the market for NNN properties expands, we can anticipate a heightened level of competition for the best assets. Strong tenants in high-quality properties in prime locations are likely to be in high demand, and landlords will need to work harder to entice and keep tenants in order to compete.

More Foreign Investment

As globalization continues, NNN properties are now more accessible to foreign investors. International investment in NNN properties will therefore increase. As a result, there will probably be more international transactions and a greater variety of investors in the market.

Overall, the outlook for NNN financing is positive due to the rising demand for this kind of property and the expansion of landlord and tenant options. However, since these trends have the potential to have a big impact on the market, it will be crucial for those involved in NNN financing to keep an eye on them. A few examples include interest rates, ESG considerations, and competition for prime assets. Also take into account the possibility that the industry will draw more foreign investors, creating a market with a variety of investors.

F2H Capital Group is a debt advisory firm specializing in negotiating the best terms for your commercial real estate projects. The company offers a range of financial products and services, including fixed loans, bridge loans, and construction loans across all asset types. Please contact us for any of your financing needs.