Investor Resources

Single-tenant commercial properties are popular for those seeking stable income with lower day-to-day involvement. However, as with real estate assets, they come with benefits and risks. Whether expanding your portfolio or exploring your first investment, understanding the pros of single-tenant commercial properties is essential to making the right decision for your financial goals.

In this blog, we’ll break down the structure of single-tenant assets, explore the upsides and challenges, and help you determine whether this model aligns with your investment strategy.

What Is a Single-Tenant Commercial Property?

A single-tenant commercial property is a building leased to just one business. These are often standalone spaces designed for the specific needs of one company. Common examples include:

• National pharmacy chains
• Fast-food restaurants
• Banks
• Auto parts stores
• Government offices

These properties are frequently leased under a triple net (NNN) structure. In this lease type, the tenant pays rent and is responsible for property taxes, insurance, and maintenance costs.

This model attracts investors who want a more passive experience with predictable returns. The simplicity of having just one lease and one point of contact makes oversight and forecasting easier compared to multi-tenant buildings.

Benefits of Investing in Single-Tenant Properties

Single-tenant investments offer several compelling advantages. For the right investor, they provide a balance of simplicity, consistency, and long-term performance.

Predictable Cash Flow

One of the main pros of single-tenant commercial properties is their reliable income stream.

Long-term leases (often ranging from 5 to 20 years) mean that investors can count on regular monthly payments. This cash flow is exceptionally stable when the tenant is a credit-rated national brand or government agency. These tenants tend to honor lease commitments and maintain long-term occupancy.

This predictability is a major benefit for investors seeking passive income or looking to diversify their portfolios with minimal volatility.

Low Management Responsibility

Most single-tenant leases are structured as triple net (NNN) leases. In this model, the tenant pays for:

• Property taxes
• Building insurance
• Maintenance and repairs

As a result, the property owner’s involvement is limited to collecting rent and ensuring lease compliance. This structure appeals to out-of-state investors, time-strapped professionals, and those seeking a more hands-off approach to ownership.

Strong Tenants

Single-tenant properties often attract high-quality, well-capitalized businesses. These tenants may include:

• National retailers like Walgreens or Starbucks 
• Government agencies or financial institutions
• Medical or urgent care providers

These types of tenants come with lower default risk compared to local businesses. They often have long-term business plans and use the property as a flagship or essential location, increasing their likelihood of lease renewal.

Simple Ownership Structure

With one tenant and one lease, operations are straightforward. Investors don’t have to juggle multiple contracts, varied lease terms, or competing tenant needs. Budgeting, reporting, and long-term forecasting become easier.

For newer investors or those managing multiple properties, the simplicity of this structure can be a welcome relief.

Risks and Drawbacks to Consider

Despite the many benefits, single-tenant commercial properties are not without risks. It is essential to assess these challenges and determine whether this type of investment aligns with your risk tolerance and financial goals.

Higher Vacancy Risk

When a tenant moves out of a single-tenant property, the vacancy rate immediately jumps to 100%. There’s no buffer of other tenants to keep cash flow going.

This can be especially problematic if the lease ends unexpectedly or the tenant’s business closes. It may take several months (or longer) to secure a replacement, during which time the property generates no income.

Leasing and Market Challenges

Single-tenant buildings are often customized to the original tenant’s needs. While this can be great for the business, it can limit your ability to attract new tenants later.

For example, a property built as a drive-thru bank may not be easily converted into a retail space. If market demand shifts in the area, repurposing the space could require significant capital.

Before investing, it’s essential to assess the surrounding market, including:

• Long-term demand for the business type
• Local demographics and foot traffic
• Zoning restrictions

Understanding these dynamics helps reduce your exposure to prolonged vacancies.

Limited Income Upside

While long-term leases offer stability, they often include modest rent increases—known as escalations. These increases may be tied to inflation or set at fixed intervals (e.g., 2% per year).

That means revenue growth is limited compared to other property types, like multi-tenant retail or office buildings, where lease turnover can create opportunities for higher rents.

If maximizing cash flow is a top priority, it’s important to consider whether this tradeoff fits your commercial investment strategy.

Dependence on Tenant Health

Even with a signed lease, your income depends on the tenant’s financial health. If the business underperforms or files for bankruptcy, rent payments may be delayed or halted altogether.

This is why tenant due diligence is critical when investing in single-tenant assets. Investors should:

• Evaluate the tenant’s credit rating
• Review business financials (if available)
• Understand industry trends and competitive threats

Without a backup source of income (as in a multi-tenant property), a struggling tenant puts your investment at greater risk.

Who Should Consider Single-Tenant Investments?

Single-tenant commercial properties are not one-size-fits-all. They tend to suit investors with specific goals, resources, and investment preferences.

This model may be right for:

• Passive income seekers who want steady returns without hands-on involvement
• Busy professionals who don’t have time to manage multiple tenants
• 1031 exchange participants looking for a straightforward way to defer capital gains taxes
• Investors with low risk tolerance who prefer long-term, credit-rated tenants

These investors are typically looking for income stability over rapid appreciation and are comfortable with slower, more predictable gains.

At Kenwood, we often recommend single-tenant properties for experienced professionals diversifying their portfolios or real estate investors seeking geographic stability with fewer moving parts.

Not Sure if It’s Right for You? Start with a Strategic Quiz

Before deciding whether to invest in a single-tenant asset, it’s smart to understand how this model aligns with your broader strategy.

Our free Property Investment Strategy Quiz helps you assess:

• Your risk tolerance
• Preferred involvement level
• Income goals
• Market preferences

In just a few minutes, you’ll get a personalized investment profile and recommendations for the asset types that best match your goals—including whether single-tenant commercial properties are a fit.

Take the quiz now to explore your next move with more clarity and confidence.

Partner with Kenwood to Invest Smarter in Single-Tenant Properties

Single-tenant commercial properties offer a compelling path for investors seeking predictable income and low-touch ownership. Their appeal lies in the stable cash flow, high-quality tenants, and straightforward management—but they also come with challenges such as vacancy risk, limited flexibility, and dependence on tenant performance.

Whether you’re eyeing a national retail tenant or evaluating a 1031 exchange opportunity, it’s crucial to weigh the pros of single-tenant commercial properties against your specific investment strategy.

At Kenwood, we specialize in helping investors find the right assets for long-term success. With decades of experience in the Baltimore and Washington, DC markets, we understand how to identify opportunities that align with your risk tolerance and portfolio goals.

Looking to find out if this model is right for you? Take the Property Investment Strategy Quiz and see where single-tenant properties fit in your roadmap to financial growth.