Agree Realty Porter's Five Forces Analysis

Agree Realty's reliance on construction companies and developers for its development and Developer Funding Platform (DFP) projects means these suppliers hold significant bargaining power. This power can be amplified by factors like ongoing labor shortages in the construction sector or the persistent inflation of material costs, which were notably high throughout 2024 and are expected to remain a concern into 2025.

The company's commitment to 25 development and DFP projects in 2025 underscores this dependence. When specialized construction expertise is required, or when market conditions lead to increased demand for construction services, the bargaining power of these suppliers naturally strengthens, potentially impacting Agree Realty's project costs and timelines.

Agree Realty faces moderate bargaining power from suppliers of capital, influenced by market interest rates and capital availability. Its strong credit ratings, Baa1 from Moody's and BBB+ from S&P, help mitigate this power, allowing for efficient capital access. For example, in 2024, the company successfully utilized various funding avenues.

Construction and development suppliers can exert significant influence, particularly given labor shortages and material cost inflation observed in 2024, which are expected to persist. Agree Realty's commitment to 25 development and DFP projects in 2025 highlights this reliance, where specialized needs can amplify supplier leverage.

Suppliers for property management and maintenance services generally have low bargaining power for Agree Realty due to its net-lease model, where tenants handle most operational expenses. This structure, with the majority of its 2024 portfolio in single-tenant net lease properties, minimizes Agree Realty's direct need for these services.

Technology and data providers, especially those offering specialized PropTech, can have some influence due to the essential nature of their services for strategic decisions. However, their overall cost impact on Agree Realty's operations is typically less significant than other major expenses, despite substantial investment in the PropTech market in 2024.

Agree Realty's portfolio is built on properties that are essential and fungible, meaning tenants find them highly desirable and adaptable. This inherent quality reduces the likelihood of tenants seeking significant concessions, as finding truly comparable alternatives becomes challenging.

The company's focus on recession-resistant retail, often occupied by essential service providers, further strengthens its position. For instance, properties leased to national grocery chains or pharmacies are critical to these tenants' operations, giving Agree Realty leverage in negotiations. In 2024, retail properties with strong essential service tenants continued to demonstrate resilience and high occupancy rates, underscoring the value of this strategy.

Agree Realty's customers, primarily national and regional retail tenants, possess limited bargaining power due to the company's strategic focus on high-quality, essential retail properties and its robust portfolio diversification. The company's emphasis on investment-grade tenants, which constituted 67.8% of its tenant base in Q2 2025, and long-term net leases with a weighted-average remaining term of 8.0 years, further solidifies its negotiating position.

The company's extensive portfolio, exceeding 2,000 properties across all 50 states as of Q1 2024, minimizes the impact of any single tenant's leverage. Even its largest tenant, Walmart, represented only 6.0% of annualized base rent in Q1 2024, indicating a well-distributed revenue stream. This broad tenant and geographic spread, coupled with a 99.6% occupancy rate in Q2 2025, underscores strong demand and tenant retention, effectively counteracting potential customer power.

Competitive rivalry within the real estate investment trust (REIT) sector, particularly for Agree Realty, is heavily shaped by access to and the cost of capital. Companies possessing robust financial health and a lower cost of capital can gain a significant advantage in acquiring prime real estate assets.

Agree Realty's demonstrated financial strength, exemplified by its 'fortress balance sheet' and substantial liquidity of $2.3 billion as of the first quarter of 2024, enables it to outbid rivals for attractive properties. This financial leverage allows Agree Realty to pursue its growth objectives more aggressively and efficiently compared to competitors with less financial capacity.

Competitive rivalry in the net lease retail sector is intense, driven by a fragmented market with numerous participants, including REITs, private equity, and individual owners. Agree Realty's strong market position is challenged by this broad base of investors actively seeking attractive acquisition targets, a trend evident throughout 2024 with significant transaction volumes.

Agree Realty's ability to secure prime net-leased properties is a key differentiator, supported by a projected investment range of $1.4 billion to $1.6 billion for 2025. While its financial strength, including $2.3 billion in liquidity as of Q1 2024, provides an edge, other well-capitalized entities also compete for similar high-quality assets, demanding efficient execution of acquisition and development plans.

The company's competitive advantage is further amplified by its focus on tenant quality, exemplified by a weighted average remaining lease term of approximately 7.8 years as of Q1 2024. This stability, stemming from strong tenant relationships and rigorous underwriting, distinguishes Agree Realty from competitors who may engage with less stable tenants.

Agree Realty's portfolio resilience, demonstrated by a 99.4% occupancy rate in Q1 2024 and diversification across all 50 states, positions it favorably against rivals with more concentrated holdings or tenants facing greater market pressures.

The increasing prevalence of e-commerce presents a substantial long-term challenge to traditional physical retail, directly impacting retail Real Estate Investment Trusts (REITs). This shift means consumers can increasingly bypass brick-and-mortar stores for online alternatives.

Agree Realty actively counters this threat by concentrating on retailers that are essential to an omni-channel strategy. These include businesses like grocery stores, home improvement centers, and auto parts retailers, where physical locations remain crucial for customer experience and operational efficiency, even alongside online sales. For instance, in 2024, retailers like Home Depot and Lowe's, key tenants for many retail REITs, reported continued strong performance driven by both in-store and click-and-collect sales, demonstrating the resilience of their physical footprints.

The threat of substitutes for Agree Realty's leased properties primarily stems from alternative ways tenants can operate their businesses and how investors can allocate capital. For tenants, owning property outright is a substitute, though it requires significant capital. For investors, other asset classes like bonds or direct real estate offer different risk-return profiles.

The rise of e-commerce is a critical substitute for physical retail spaces, impacting Agree Realty's tenant base. However, Agree Realty mitigates this by focusing on essential retailers like grocery and home improvement stores, which maintain strong physical presence needs. In 2024, these sectors continue to show resilience, with many key tenants reporting robust omni-channel sales performance.

Established REITs, including Agree Realty, benefit from investment-grade credit ratings and broad access to capital markets. This allows them to secure financing at significantly lower interest rates compared to newer market participants. For instance, in early 2024, companies with strong credit profiles could access debt at rates well below those available to unproven entities.

New entrants often struggle to obtain favorable financing, facing higher borrowing costs and more restrictive terms. This financial hurdle makes it more challenging for them to compete for desirable properties, thereby limiting their ability to enter the market effectively and scale their operations.

The threat of new entrants for Agree Realty is relatively low due to the substantial capital required to enter the net-leased retail real estate sector. Acquiring a portfolio of scale similar to Agree Realty's, which comprised 2,160 properties as of Q1 2024, necessitates billions in investment, a significant barrier for most newcomers.

Furthermore, the specialized knowledge in net lease structuring, property underwriting, and tenant relationship management cultivated by Agree Realty over decades creates a strong competitive advantage. New entrants would struggle to replicate this expertise and the established relationships that facilitate property acquisition and favorable financing terms.

Stringent regulatory and compliance requirements for REITs also pose a considerable hurdle, demanding significant investment in legal and financial infrastructure. The need to distribute at least 90% of taxable income annually, a 2024 requirement, further impacts capital availability for new players.