Foreign Investment in U.S. Net-Lease Assets Help Drive Record Year in 2019
Net-Lease Commercial Investment Reaches Record $77.5 billion in 2019
Global commercial property consultant CBRE is reporting this week U.S. net-lease investment reached record highs in 2019, with investors increasingly attracted to opportunities in high-growth secondary and tertiary markets.
Net-lease investment--comprising office, industrial and retail properties--increased by 10.9% in 2019 to a record $77.5 billion, outpacing the growth rate of all commercial real estate. This was despite a 23% year-over-year drop in Q4 2019 volume to $19.5 billion--still 18.2% above the five-year average.
Some of the largest annual gains for net-lease investment were in San Diego (+110%), the Inland Empire (+105%), Tampa (+56%), Indianapolis (+50%) and Memphis (+48%). Los Angeles ($5.0 billion), New York City ($4.9 billion) and San Jose ($4.2 billion) had the most full-year net-lease investment in 2019, while Seattle was the most favored market in Q4 2019 ($2.2 billion).
"The record buying activity further confirms that investors are increasingly attracted to the prospect of compelling risk-adjusted returns provided by net-lease properties. This search for yield, along with solid underlying fundamentals and the long-term lease structures offered by the asset class, can alleviate concerns associated with entering secondary or tertiary markets," said Will Pike, vice chairman of Net Lease Properties for Capital Markets at CBRE.
Net-lease investment volume was driven by a 2.5% year-over-year gain for the office sector and a 2.4% gain for the retail sector, offsetting a 4.9% decline for the industrial sector.
"The net-lease sector has been one of the darlings of the retail capital markets space, as investors are drawn to high-credit tenants with long-term leases and guaranteed yields. Most importantly, many of the single-tenant occupiers operate in e-commerce-resistant categories such as F&B and convenience, furthering the promise of steady returns," said Melina Cordero, leader of CBRE's retail capital markets business for the Americas.
Foreign investment in U.S. net-lease properties increased by 0.7% year-over-year to $9 billion in 2019--the second biggest year on record. Canada, Germany, Spain and Switzerland are the top countries for inbound capital in U.S. net-lease properties over the past 24 months, accounting for almost two-thirds of all foreign investment in the sector.
Institutional investors increased their acquisitions by 3.2% to $26.4 billion in 2019. Private investors, the largest buyer group, accounted for $39.3 billion in acquisitions, up by 36.2% year-over-year. REITs were down by 18.4%.