Net Lease Investment Back on Track: CBRE

Image by Gerd Altmann via Pixabay

A return to normalcy in the net-lease investment market is on the horizon, according to CBRE’s latest U.S. Net-Lease Investment Report. In the first quarter of 2021, net-lease investment volume neared full recovery, recording a year-over-year decrease of just 2.6 percent and an even more promising increase of 10 percent from the pre-pandemic level seen in the first quarter of 2019.

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Net-lease transaction volume totaled $14.3 billion in the first quarter of 2021 and accounted for an aggregate $60.5 billion in the year ending in the first quarter of 2021.

“Net-lease investments provide attractive risk-adjusted returns from long-term leases with creditworthy tenants. These returns are particularly appealing in times of uncertainty,” according to the CBRE report. “During the COVID-19 pandemic, the net-lease share of all investment activity jumped to 14.7 percent in 2020. During the Great Recession, it reached 15.1 percent in 2009.”

Sector preferences, site predilections

In terms of asset type, the pandemic has brought about some changes to net-lease investors’ appetite, and the first quarter of 2021 was no exception. While the industrial sector remained in the lead in the first quarter of 2021 with the same approximately 43 percent market share seen in the first quarter of 2020, the year brought quite a change to investment trends in the office and retail sectors.

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Investment in the net-lease office sector increased year-over-year from 36.3 percent to 41.5 percent in the first quarter, rendering investment activity almost identical in the office and industrial sectors. The retail sector recorded just 15.1 percent of total net-lease investments on the heels of having experienced a pre-pandemic five-year quarterly average of 27 percent.

35 Landsdowne St., Cambridge, Mass. Image via Google Street View

Boston topped the list of the leading markets for net-lease investment volume in the first quarter with $2.3 billion of transactions, moving up from second place to replace Chicago, which fell out of the top five. Markets in California accounted for the second, third and fourth spots, with Los Angeles, San Jose and the East Bay recording investment volumes totaling $720 million, $693 million and $640 million, respectively. Dallas-Fort Worth ranked fifth with $475 million in net lease investment volume.

The notable disparity in investment volume between the first- and second-place positions, as well as between the first-place totals in the first quarter of 2020 and 2021, can be attributed to the closing of a big-ticket transaction involving Blackstone.

The investment firm’s Blackstone Property Partners Life Sciences component—which owns BioMed Realty—acquired a 2.3 million-square-foot portfolio of office and laboratory buildings from Brookfield Asset Management for $3.4 billion. The portfolio is heavily concentrated in Cambridge and includes 35 Landsdowne St., a 200,000-square-foot building occupied by Takeda Pharmaceuticals (formerly Millennium Pharmaceuticals), and the 146,000-square-foot life sciences building at 88 Sidney St., home to Agios Pharmaceuticals.