H1 Net Lease Volume Up Across Sectors: JLL

Image by Gerd Altmann from Pixabay

The net lease market for the office, industrial and retail sectors is on track to surpass 2021’s strong liquidity numbers, according to JLL’s latest market report.

JLL’s August market update on U.S. net leases showed that all property sectors are already ahead of 2021’s pace, even though momentum slowed down in the second half of the second quarter.

The first half of 2022 saw a total volume of $32.8 billion in net lease transactions, the majority of which came from a strong first quarter of the year. The first half of 2022 is already outpacing the same period in 2021, which saw $27.1 billion in net lease transaction volume. While the first half of the year showed a strong performance, there was a slight slowdown in momentum in the second quarter, following the record numbers from the first quarter of 2022.

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More specifically, the office sector saw a 7 percent increase in transaction volume in the first half of 2022 compared to the first half of 2021. The retail sector saw a 10 percent increase in transaction volume when looking at the same time frame. The sector showing the most liquidity was industrial, which saw a 22 percent increase in transaction volume in the first half of 2022 compared to a year prior.

Retail sector on the decline

When looking at pricing for net leases, the office sector saw an increase of 20 basis points year-over-year for the average net lease cap rate, which rose to 6.3 percent, while the industrial sector saw a jump of 10 basis points year-over-year to a 5.6 percent cap rate. The only sector to see a drop was the retail sector, which experienced a decline of 20 basis points to a 5.8 percent cap rate. The report also noted that rising borrowing costs are causing greater net lease yields.

Looking ahead, JLL is expecting property owners with significant gains to continue to be active sellers. However, the market is seeing elevated risk and volatility due to inflation and the Federal Reserve’s actions. The report also noted that debt markets are currently liquid but volatile, which is expected to cause upward pricing pressure for all three sectors.

Read the full report by JLL.