ORLANDO—More cashing out. More competition. More compression on cap rates. Those are a few of the ways the net lease market has changed since this time last year. Foreign investors are making their mark, build-to-suit is back in vogue and new challenges are emerging that could change market dynamics in the months ahead.

The net lease retail market entered 2015 on mixed footing. Low oil prices are hampering earnings at gas stations and extra income in consumers' pockets is being redirected to other purchases, according to Marcus & Millichap's Net-Leased Retail Research Report. The firm predicted investors executing 1031 exchanges will dominate the net lease market in 2015 as retiring Baby Boomers take advantage of record-low cap rates in the apartment market.

David Sobelman, executive vice president and managing partner at Calkain Cos., a Reston, VA-headquartered brokerage firm specializing in triple net lease investments, has his ear to the ground. He hears from a diverse swath of practitioners in various disciplines throughout the net lease investment industry—and the general consensus is there's a severe lack of supply in today's market. But he's not seeing exactly the same thing he's hearing.

“Our tracking of the market is proving otherwise,” Sobelman says. “There is actually a healthy supply of net lease investments in today's market. But there is a severe lack of supply of quality net lease properties. Inventory is high overall, but low from a quality perspective.”

That lack of supply of quality net lease properties isn't stopping the deal flow. James McCartney, managing director at Net Lease Capital Advisors, a net lease acquisitions, advisory and brokerage firm in Nashua, NH, says investors are digging deeper to make deals happen.

“There are more deals getting done in secondary and tertiary markets and lower credit deals in the search for yield,” McCartney says. “Demand continues to exceed supply. We're seeing bidding wars on corporate headquarter buildings and ground leases.”

Net lease investors may be venturing into secondary and tertiary markets and eyeing class B and class C assets, but that doesn't necessarily mean they are compromising the quality of the actual investment criteria. Jason Fox, head of global investments at W. P. Carey, a global net lease REIT, says the same investment criteria apply across the net lease board.

“For a credit tenant with a long lease, where the majority of the projected return comes from rental payments versus residual value, secondary and tertiary markets can provide attractive investment opportunities,” Fox says. “It is a question of evaluating risk-adjusted returns where the lease term, creditworthiness of the tenant and criticality of the asset all play a role in the investment decision whether it be class A, B or C assets.”

From Sobelman's perspective, investors are getting more creative all the time. Indeed, they are increasingly willing to concede on different aspects of their investment strategy in order to purchase properties that fit their return thresholds. Secondary and tertiary markets are part of those concessions.

“I remember in 2005 and 2006, when there was a drastic increase in new housing developments and supporting from an infrastructure perspective, net lease properties were 'in the path of growth,'” Sobelman says. “The same phenomenon applies to today's market as construction and investment is occurring outside of core markets.”