Net Lease Market Overview
Written by Wes Koontz, Net Lease Investment Sales Director
The net lease marketplace is a dynamic and growing entity. What was once a relative niche in the commercial real estate industry, net lease has become an integral sector in the business. With the ever-changing net lease market, we felt it useful to discuss current trends we’re seeing in the net lease sector surrounding supply, demand and cap rates.
Steady Climb in Supply
As you can see from the quarterly new listing trend report below, we have seen a steady climb in new deals to market over the past two years. This past quarter, we had a dramatic increase in total number of new deals tracked. There was an increase of 34.29% from 4th Quarter 2015, 22.50% from 3rd Quarter 2015 and 40.78% from a year earlier. It will be interesting to see how the sheer increase in number of deals may impact pricing in the market.
2015 Net Lease Volume
In terms of total retail net lease volume, Mid-America tracked close to $16 billion in deals in 2015. While there are certainly many deals that trade off market, and ones that we may not track, this equates to retail net lease transactions comprising roughly 25%-30% of the total net lease marketplace. Estimates recently have shown this market in the US to be $50-70 billion.
Retail Cap Rate Compression & Increasing Term of Sale
Cap rates in the net lease and investment real estate industry are a critical barometer of industry health and a good measure of supply and demand. We track average retail net lease cap rates across the term spectrum, but find it more useful to see what is happening by segmented term lengths.
While we have had an overall consistent compression of cap rates throughout the past year, part of the dynamic has been an increase in ultra-long term deals. These are deals over 20 years, which are typically sale-leaseback transactions, long term bank deals and Walgreens and CVS. In that category, we have seen an increase of almost 200% from Q1-Q4 of deals closed. This has caused the average deal term for 2015 closing to move up 1.5 years to 13.34 years.
Wesley C. Koontz, CCIM | Net Lease Investment Sales Director
Mid-America Real Estate Corporation
Tribune Tower | 435 N. Michigan Ave., Ste. 2009 | Chicago, IL 60611
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