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Net Lease Sales Volume Hit Four-Quarter Record in Q1
Net-lease investment volume increased by 34.6% to $78.9 billion for the year ending March 31, the highest four-quarter total on record, as investors sought attractive yield at lower risk compared to other commercial real estate assets, CBRE reported.
Volume in the first quarter ticked up 1.0% year-over-year to $13.2 billion. However, CBRE said volume is expected to drop in Q2 due to the economic fallout from COVID-19.
By market, Washington, D.C. was the most-favored investment market in Q1, CBRE said. New York City, Los Angeles and San Jose had the most volume over the past four quarters.
Investors looked increasingly to net-lease investment opportunities in high-growth secondary and tertiary markets. Some of the largest four-quarter percentage gains occurred in Kansas City, the Inland Empire, San Diego, Austin, Indianapolis and Cincinnati.
Net-lease cap rates were stable in Q1, but are expected to rise in 2020 due to suppressed investment activity from the COVID-19 pandemic, according to CBRE. Spreads widened in Q1 to 557 basis points, the most in seven years, as the 10-year Treasury rate hit an historic low of 0.7%.
Meanwhile, the global search for yield and portfolio diversification continued to attract international investors to the U.S. market. Cross-border capital for net-lease properties totaled $9.3 billion for the year ending in Q1, representing a 38.7% jump from the year-ago period. Canada, Germany, Spain and Switzerland have been the top countries for inbound capital over the past two years.
By price, Q1’s biggest net-lease transaction occurred in the office market, as the federal government finalized its $760-million deal for the U.S. Department of Transportation headquarters in Washington, D.C (pictured). The seller was JBG Smith.
That being said, industrial comprised the largest sector by dollar volume in Q1, representing 43.8% of the total. Industrial’s gains offset declines in the office and retail sectors, CBRE said.
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- ◦Sale/Acquisition
- ◦Lease
