According to the latest research from CBRE, U.S. net-lease investment is outpacing the broader commercial real estate market in 2019, with increasing demand from both foreign and domestic investors for office and industrial assets.
Net-lease investment--comprising office, industrial and retail properties--climbed 17.2% year-over-year in the first half of 2019 to $33.4 billion, with total commercial real estate volume growth at 13.4% over the same period.
Net-lease investment volume in in Q2 2019 was the second-highest quarterly total on record at $20.6 billion and up by 33.8% year-over-year. Net-lease investment volume for the year-ending Q2 2019 totaled $74.2 billion--the highest four-quarter total since CBRE began tracking the market in 2002.
"The high volume of net-lease activity has been a byproduct of an aggressive capital markets environment coupled with an influx of capital, both foreign and domestic, seeking compelling risk-adjusted returns," said Will Pike, vice chairman of Net Lease Properties for Capital Markets at CBRE.
Net-lease investment volume in Q2 2019 was driven by gains in the office sector (65.7% year-over-year growth) and retail (52.2%), while industrial remained nearly unchanged (0.6%).
Investors are increasingly focused on net-lease investment opportunities in high-growth secondary markets. While gateway markets like San Francisco and Boston had the largest year-over-year gains in investment volume in Q2 2019, markets such as the Inland Empire, San Diego and the East Bay made the top-10 list.
Cross-Border Net-Lease Investment
The global search for yield and portfolio diversification is attracting global investors to the U.S. net-lease market. Cross-border capital for net-lease properties reached $3.9 billion in Q2 2019--a 78.4% increase from Q2 2018 and the second-highest quarterly total on record.
International buyers accounted for 18.8% of net-lease transaction volume in Q2 2019--their highest share since 2015.
New York City, San Francisco, Miami, Houston, Los Angeles and Chicago received the most foreign capital for net-lease investment. Over the past two years, the top country sources of capital have been Canada, Germany and South Korea.
Foreign investment in U.S. net-lease properties has averaged more than $8 billion annually over the past four years from approximately $3 billion annually between 2011 and 2014.
According to global property advisor CBRE, an advantageous balance of moderate growth, low inflation, and falling long-term interest rates in the U.S. kept capitalization rates for commercial real estate assets broadly stable in the first half of 2019.
Global real estate consultant JLL is reporting this week that after a bumpy 2018, investment in global commercial real estate cooled in the first half of 2019 with year-on-year volumes dropping by 9% to $341 billion.
According to Transwestern's recently released national office report reflects resilience in U.S. market fundamentals, even in the face of the moderating pace of U.S. economic growth demonstrated by net job creation averaging 172,000 per month for the first half of the year.
The differential between U.S. rates and those in countries with lower-yielding foreign currencies has narrowed, contributing to lower hedging costs for foreign investors acquiring U.S.-dollar-denominated assets.
According to new research from commercial property consultant CBRE, the global search for yield and portfolio diversification is driving more foreign investors to the U.S. net-lease real estate market.
Join 34,000+ real estate professionals worldwide who receive our free weekly newsletter