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Investment in Net-Lease Properties Nears Pre-Pandemic Levels

Boston and Los Angeles claim the lion's share of investment in the first three months of 2021, new CBRE report says


Net-lease properties, such as car washes, warehouses and dollar stores, retain their allure for investors coming out of COVID.

That’s according to a report released Wednesday from CBRE that found that investment in net-lease properties nationwide neared pre-pandemic levels in the first quarter of 2021. The volume of investment in net-lease properties — a setup where the tenant pays all or some of the taxes, insurance and maintenance, or some combination of the three, on top of the rent — was up 10 percent in Q1 compared with the first quarter of 2019, before the pandemic.

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Also, while the volume of investment activity in net-lease properties was down 2.6 percent to $14.3 billion in the first quarter compared with the same period in 2020, that drop was much shallower than the 18.3 percent year-to-year drop in commercial real estate investment volume overall.

“Much like the global financial crisis trend we experienced over a decade ago, net-lease properties continue to attract interest during this downturn as investors seek long-term dependable cash flows,” Will Pike, vice chairman of net lease properties for capital markets at CBRE (CBRE), said in a release about the report.

Indeed, dependability is the key word for these assets. Net-lease properties draw investors mostly because the properties’ tenants are typically of the stable, creditworthy kind: they take on those added costs, such as maintenance and insurance, and they generally lease for a long time. Car wash net leases usually run for 15 to 20 years, for instance. 

“If you’re talking to a high-net-worth individual who is looking for a long-term, stabilized asset that they’re going to basically mailbox money, the car wash lease structure will kind of check all of those boxes,” David Wirgler, an associate director at investment sales firm Stan Johnson Company, told Commercial Observer in early April.

Boston drew the bulk of Q1 2021’s net-lease property investment — more than $2.3 billion — with Los Angeles second with $709 million. San Jose and the nearby East Bay market were third and fourth with between $640 million and $700 million.

As far as property types went, office’s share of net-lease investment volume bounced 12.2 percent annually in Q1, to $6 billion, or 41.5 percent, of net-lease investment activity. Industrial, which had been generally white-hot during the pandemic amid a land rush for e-commerce delivery and storage space, actually saw a 1.7 percent annual decline in Q1, to $6.2 billion. Industrial still accounted for most investment, though, with 43.4 percent of the quarter’s share.

Investment in net-leased retail properties declined, too, but much more sharply than industrial: down 27.9 percent annually, to $2.2 billion, according to CBRE. Retail accounted for 15.1 percent of net-lease investment volume in Q1.