Commercial Net Lease Investment Activity Returns to Pre-Pandemic Levels in U.S.
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According to a new study by CBRE, investments in U.S. net lease real estate in the first quarter of 2021 were near pre-pandemic levels, fueled by robust institutional acquisition activity, increased interest in office real estate as plans to return to work popped up Gaining momentum and resilient foreign investments despite COVID-19-related international travel restrictions.
Net lease properties are characterized by a rental structure in which the tenant undertakes to pay part or all of the taxes, insurance fees and maintenance costs in addition to the rent. While net leasing investment activity (consisting of office, industrial and retail properties) declined 2.6% year-over-year to $ 14.3 billion in the first quarter of 2021, the volume increased from the first quarter of 2019 before the pandemic by 10% The real estate volume in the first quarter of 2021 was 18.3% lower than a year earlier.
“Much like the global financial crisis (GFC) trend we saw over a decade ago, net lease properties continue to attract interest during this downturn as investors look for long-term, reliable cash flows. Interest in the office sector is growing, with strong demand for business-critical assets as COVID-19 policies change and employees return to work, “said Will Pike, vice chairman of Net Lease Properties for Capital Markets at CBRE.
The office sector’s share of total net leasing investment increased 5.2 percentage points year-on-year to 41.5%, with the highest volume ever recorded in the first quarter at nearly $ 6 billion. The industrial sector continued to attract the largest net leasing capital with a relatively unchanged share of 43.4%, while the share of retail fell 5.4 percentage points to 15.1%.
Institutional and equity funds, which were the largest net lease buyers this quarter, increased their acquisition activity 40% year over year to $ 6.7 billion in the first quarter of 2021. Private investment in net lease real estate rose 6.7% to $ 6.3 billion over the same period. REITs net leasing investment decreased 44% year over year to $ 1.4 billion in the first quarter of 2021.
Large gateway markets continue to see the most net lease investment activity in the US, with Boston being the primary target in the first quarter of 2021. Net lease investors are also increasingly drawn to high-growth secondary and tertiary markets, with some of the largest four quarters increasing percentages in Provo, Utah (+ 639.4%); Trenton, New Jersey (+ 609.8%); Savannah, Georgia (+ 451.5%); and Honolulu, Hawaii (+ 258.7%).
While the COVID-19 downturn and travel restrictions have restricted international investors from acquiring US net lease assets, foreign investment still rose 8.7% year over year to US $ 1.7 billion in the first quarter of 2021. Dollar. International buyers accounted for 11.6% of the total net rental volume in the first quarter of 2021, which is above the five-year average for the first quarter of 11.1%. San Francisco, Richmond, Boston, Los Angeles, and New York City saw the most international net lease investments in the first quarter of 2021. Singapore, South Korea, Canada, and Kuwait accounted for 75% of total offshore capital focused on US net lease real estate for the year-end Q1 2021.
The net lease sector is attractive for investors, as long-term leases and tenants with good credit ratings are considered safe properties in an economic downturn. During the COVID-19 pandemic, the net leasing share of total commercial real estate increased from 13.5% in full 2019 to 14.7% in 2019. The sector showed a similar trend during the GFC when its share rose to 15.1% overall for the year 2009 of 8.7% for the full year 2007. For the year ending in the first quarter of 2021, the total investment volume from net leasing was 25.9% compared to the same period in the previous year when the economic downturn from COVID-19 blocked transaction activity, and comprised 15.4% of the total investment volume in commercial real estate.