Report: Most Net-Lease Tenants Only Moderately Exposed To Tariffs

Sector-specific tariffs—and the possibility of increased country-specific duties as soon as July—are already influencing retail operations and decision-making, according to Marcus & Millichap’s H1 2025 Single-Tenant Net-Lease Retail National Report.

While food-related retailers have seen minimal disruption, department stores and auto parts retailers are feeling greater pressure. Overall, most net-lease tenants fall into the mildly to moderately affected categories, which bodes well for single-tenant property owners.

In anticipation of new tariffs, many retailers have accelerated inventory purchases, leading to a 41% quarter-over-quarter spike in import volumes. Companies like Build-A-Bear Workshop, Williams-Sonoma, and Zumiez placed unusually large orders. This stockpiling has boosted demand for short-term industrial storage space. To counteract the impact of tariffs, some retailers—such as Best Buy, Target, and AutoZone—are planning price increases. Others are opting to discontinue certain products or shift sourcing to alternative countries.

The initial wave of tariff actions between the U.S. and China has already caused manufacturing slowdowns in China and decreased shipping traffic at West Coast ports. Retailers sourcing goods domestically or from Canada and Mexico are expected to be the least affected by changing supply chain dynamics.

Interestingly, some tariffs may benefit brick-and-mortar retailers like Old Navy, Ulta Beauty, and Nordstrom, which have gained market share from online platforms such as SHEIN and Temu—both heavily reliant on Chinese imports.

Marcus & Millichap notes that a concurrent slowdown in construction is proving timely. Developers added just 23.8 million square feet of single-tenant retail space in the year ending March 2025—the lowest 12-month total on record. As of May, the development pipeline accounts for only 0.2% of existing inventory.

“With limited new space coming online, tenants are likely to seek well-located existing properties—especially given that vacancy rates are 100 basis points below the sector’s long-term average,” the report stated.

Net absorption of single-tenant space turned negative in Q1—only the fourth time on record. Retailers in vulnerable categories like apparel, footwear, auto parts, and home goods may face heightened challenges, potentially leading to more store closures. Jack in the Box, for example, has announced plans to shutter up to 120 locations.

Despite the uncertainty, single-tenant assets remain an attractive investment option, particularly those leased to high-credit tenants in essential or dining-focused categories. Weak consumer sentiment typically benefits budget-conscious and necessity-based retailers. Vacancy remains especially tight across supermarket, restaurant, and fast-food segments.

“These factors improve the outlook for key subsectors,” said Marcus & Millichap. “Private investors are expected to dominate activity, as nearly 90% of Q1 single-tenant transactions fell within the $1 million to $5 million range.”

 

Source: GlobeSt