Sales of net-leased properties should slow further this year as the supply of single-tenant spaces outpaces demand and the tax-deferred exchange market eases, according to a Marcus & Millichap executive.

The market is being flooded with buildings occupied by well-known, brand-name tenants such as Starbucks, and that has affected net-lease sales volume, Daniel Taub, national director of the real estate firm's retail and net lease divisions, said at an interview Sunday at the annual ICSC trade group conference in Las Vegas.

At net-leased properties, tenants not only cover costs beyond rent but often sign leases for longer periods with fixed rent increases. Owners of these properties are seeing a slowing of deals involving 1031 tax-deferred exchanges, where sellers can put off taxes on the proceeds of real estate if they buy a similar asset within a time specified by the Internal Revenue Service.

"There is an excess of supply in the market in a lot of categories and a meaningful decrease in 1031 buyers," Taub said. "Combined with the volatility in the capital markets, that is having a prolonged impact on transactional volume, which is still down."

Net-lease investment volume fell 26%, to $7.4 billion, year-over-year in the first quarter, according to a report from CBRE. That compares to a 21% decline in total commercial real estate investment volume. For the year, net-lease investment volume totaled $36.3 billion a 44% decrease from the comparable time in 2023, CBRE said.

Marcus & Millichap's net lease division specializes in transaction services for various types of single-tenant properties. Industrial and logistics occupiers are the largest sector for net-lease investment and retailers are the second.

Despite the slowdown, buyers still desire net-lease properties, Taub said.

"There's still a market, very much so, again from both institutional and private investors," he said. "And we anticipate with the volatility in the capital markets getting to a point of equilibrium that will help and that will impact also the multifamily investor, which is a large investor, into net lease."

As for the appetite for mall properties, Taub said some investors are taking advantage of discounts in the marketplace to acquire them. This week, BH Properties of Los Angeles said it acquired Pacific Place, a mall with 45% vacancy in downtown Seattle.

"You know, look, the mall sector is almost a different asset class," he said. "And with them, you have we'll call it the winners and potential winners and those that are not going to win."

The mall business once again is "going through a transformational cycle," Taub said. "Those that are able to provide the experience, the environment and the retailers that are relevant" will succeed while others that are well positioned will need to be repurposed, he said.

Mall developers who reposition properties must figure out the right mix of retail and other uses, he said.

"So I would anticipate more investors will be finding more opportunities in existing malls, whether they're 100%, 50% or not occupied at all, where there's value add opportunity over a period of time, assuming that they can acquired at the right basis," Taub said.

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