Single-tenant net lease properties are finding stability through the pandemic—making them a standout in the retail market. Investors are taking note.

A new report from Colliers International forecasts that investment-grade triple-net tenants should produce higher leveraged returns for investors over the next several years, and investors are actively seeking and competing for these opportunities. These properties will remain particularly popular for 1031 exchange investors as well. As a result, Colliers is predicting cap rate compression in this market, although it will depend on the sector, location and the tenant quality.

Private investors are driving this market. In 2020, 70% of the capital on single-tenant net lease transactions came from private investors, while institutional investors accounted for 13.4% and owner-users accounted for 11.7% of deals. REITs showed limited activity, accounting for less that 1% of deals. There is demand for these deals from larger institutions, but there have been few opportunities for institutional capital sources to transact in the market. That said, Colliers expects institutional transactions to increase in the second half of the year. Another data point of note: most of the transaction took place in suburban markets, with only 8% of transactions in urban areas.