Tax Incentives Drive Year-End Investment Surge in Single-Tenant Net Lease Properties

Investment sales brokers are reporting increased year-end transaction activity as buyers pursue bonus depreciation benefits before 2025 concludes. Recent federal legislation has restored 100% bonus depreciation for specific commercial real estate categories, including automotive-related properties, creating urgency driven by tax strategy rather than market timing.

Brittany Megrath, CCIM and principal of M Square Commercial, explains that the end of the year represents a particularly busy period as investors seek to take advantage of depreciation on new purchases. The bonus depreciation provision, which had gradually declined from 100% to 40% over previous years, returned to full strength under recent federal policy. This restoration applies especially to automotive asset classes, including car washes and quick-lube facilities, redirecting investor attention toward properties offering immediate tax benefits alongside operational returns.

Quick-lube facilities represent what Megrath characterizes as underappreciated opportunities within the single-tenant net lease market. These properties offer tax advantages combined with practical site characteristics and established tenant expansion programs. They require smaller footprints than traditional automotive uses, enabling development on constrained parcels while benefiting from the same 100% bonus depreciation treatment as larger automotive facilities. Corporate tenants are actively expanding in the quick-lube space according to industry observations.

The year 2025 presented execution challenges across commercial real estate, with M Square's site selection and development advisory work revealing persistent friction in deal completion. Many deals required significant effort to reach completion, forcing developers to get creative with financing solutions. Developers increasingly turned to private lending when institutional financing proved too restrictive or slow, with the choice of capital source becoming more consequential as it determines project structure, hold period, and exit strategy.

Looking toward 2026, M Square anticipates that continued interest rate declines will improve investment appetite for single-tenant net lease assets as alternative fixed-income returns become less competitive. Properties offering 6-7% returns may regain investor attention as Treasury yields and CD rates decline, improving the risk-adjusted attractiveness of commercial real estate relative to lower-risk alternatives. Small-footprint tenants across coffee and quick-service categories are expected to maintain expansion programs through 2026 despite financing market challenges.

Banking sector behavior will influence transaction velocity, with institutional lenders who reduced commercial real estate exposure during recent uncertainty facing decisions about re-engagement with borrowers. M Square Commercial anticipates facilitating 30-40 transactions annually across target markets in the Southeast and Mid-Atlantic regions, focusing on beverage, automotive, and quick-service retail categories. More information about their services can be found at https://www.msquarecommercial.com.