Recession-Resistant Tenants: Retail Categories Driving Stability in 2024
Investors seeking stability in an uncertain economic environment often turn to recession-resistant tenants in the net lease retail sector. These tenants operate in industries that maintain steady demand regardless of economic cycles, making them ideal for generating consistent income and minimizing risk. In this article, we explore the retail categories driving stability in 2024 and the key factors that make them attractive to net lease investors.
1. Discount Retailers: Meeting Consumer Needs at Every Income Level
Discount retailers have long been a staple of recession-resistant investments. These stores provide essential goods at affordable prices, catering to a broad customer base, including budget-conscious consumers during economic downturns.
Top Tenants in the Category:
- Dollar General: With over 19,000 locations, Dollar General is expanding aggressively in underserved markets, offering investors reliable long-term leases.
- Aldi: Known for its no-frills, low-cost model, Aldi continues to attract loyal customers and expand its U.S. footprint.
- Five Below: Catering to younger consumers, Five Below combines affordability with trendy products, ensuring consistent traffic even in challenging times.
Why They’re Resilient:
- Essential goods and household items drive consistent foot traffic.
- Low price points make them appealing across various economic conditions.
- Many operate in secondary or tertiary markets, where competition is less intense.
2. Quick-Service Restaurants (QSRs): Affordable Dining Options
Quick-service restaurants (QSRs) remain a cornerstone of recession-resistant investments, as they provide affordable and convenient dining options. These tenants adapt quickly to consumer trends, such as mobile ordering and delivery, further solidifying their resilience.
Top QSR Tenants:
- McDonald’s: With its iconic brand and strong global presence, McDonald’s continues to dominate the QSR sector.
- Chick-fil-A: Known for exceptional customer service and consistent sales growth, Chick-fil-A remains a top performer.
- Taco Bell: Part of the Yum! Brands portfolio, Taco Bell’s focus on value-driven menu options keeps customers coming back.
Why They’re Resilient:
- Strong brand loyalty ensures steady revenue streams.
- Adaptability to delivery and drive-thru trends increases convenience.
- Value menus attract a wide range of customers during economic downturns.
3. Pharmacies and Healthcare Tenants: Essential Services in Any Market
The healthcare sector, including pharmacies, urgent care centers, and specialty medical providers, is inherently recession-resistant due to the non-discretionary nature of healthcare spending. These tenants provide essential services that remain in demand regardless of economic conditions.
Top Healthcare Tenants:
- CVS Health: A leader in the pharmacy space, CVS is expanding its range of services, including MinuteClinics and telehealth.
- Walgreens: Offering both retail and prescription services, Walgreens is a key player in the healthcare retail sector.
- Fresenius Medical Care: Specializing in dialysis services, Fresenius benefits from the growing need for chronic care solutions.
Why They’re Resilient:
- Healthcare is a necessity, not a luxury, ensuring consistent demand.
- Pharmacies benefit from aging demographics and increasing prescription needs.
- Long-term leases with strong credit tenants add security to investments.
4. Grocery Stores: Anchoring Stability
Grocery stores are among the most reliable tenants in the net lease sector, offering essential goods that consumers prioritize during both strong and weak economic periods. As a result, grocery-anchored retail centers are a preferred asset class for investors.
Top Grocery Tenants:
- Kroger: A dominant player in the U.S. grocery market, Kroger continues to expand its digital and in-store operations.
- Publix: Known for its customer loyalty and high-quality offerings, Publix is a strong performer in Sunbelt states.
- Walmart Neighborhood Market: Focused on smaller formats, these stores cater to local communities with essential goods.
Why They’re Resilient:
- Consumers prioritize groceries over discretionary spending during economic uncertainty.
- Many grocery stores have adapted to omni-channel models, such as curbside pickup and delivery.
- Strong credit tenants and long-term leases provide consistent income streams.
5. Auto Parts and Services: Keeping Americans on the Road
Auto parts retailers and service providers thrive during economic downturns as consumers prioritize maintenance and repairs over purchasing new vehicles. This category benefits from the aging vehicle fleet in the U.S. and the increasing average age of cars on the road.
Top Tenants in the Category:
- AutoZone: With over 6,000 locations, AutoZone’s focus on replacement parts ensures steady demand.
- O’Reilly Auto Parts: Known for its strong distribution network and customer service, O’Reilly is a top choice for investors.
- Advance Auto Parts: Offering a mix of DIY and professional solutions, Advance Auto Parts continues to grow its market share.
Why They’re Resilient:
- Consumers delay large expenses, such as buying new cars, and focus on maintaining existing vehicles.
- Consistent demand for replacement parts and services ensures steady revenue.
- Many locations operate in high-traffic areas, boosting visibility and accessibility.
Conclusion
Recession-resistant tenants are the backbone of stability in the net lease retail sector, providing investors with reliable income streams during uncertain times. By focusing on categories such as discount retailers, quick-service restaurants, pharmacies, grocery stores, and auto parts providers, investors can build resilient portfolios that perform well across economic cycles.
Understanding the characteristics that make these tenants resilient—from essential services to strong brand loyalty—is key to making informed investment decisions. As we move through 2024, prioritizing these retail categories will ensure long-term success in an ever-changing economic landscape.
