March 30, 2017

​Investor Appetite Strong for Net-Lease Assets

  • Investor demand for U.S. net-lease product remains strong, with 2016 transaction volume the second-highest annual amount in the past 15 years. Net-lease transactions are also increasing as a share of total annual investment.
  • Despite rising 10-year Treasury rates and marginal softening in net-lease cap rates, spreads remain in line with long-term averages, ranging between 300 and 400 basis points (bps). With further increases in long-term rates expected, spreads are likely to be under pressure. Furthermore, investors are likely to become more selective on asset type, lease terms and credit quality.
  • Lender appetite, rising interest rates and questions regarding proposed tax reforms present headwinds for the net-lease segment. However, the overall outlook is cautiously optimistic, particularly given the considerable equity chasing yield-driven real estate in the U.S.
  • Net-lease retail is the strongest performing net-lease asset type. Drugstores and casual-dining properties represent about half of total transaction volume, fueled by favorable consumer trends and opportunities for sale-leasebacks.