Net Lease Market Grows "Increasingly Saturated"

“The net lease market is becoming increasingly saturated as more players enter,” Gino Sabatini, head of investments and managing director at W. P. Carey, tells GlobeSt.com. Sabatini is speaking on the State of the Industry: Post-Pandemic Recovery panel at the GlobeSt.com Net Lease conference later this month, where he will discuss the recent explosion in net lease investment.

One major reason investors are flocking to the asset class: resiliency. Many net lease properties performed well through the pandemic. “Net lease fared extremely well during the pandemic. Similar to what we saw during the global financial crisis in 2008, net lease properties attracted significant investor interest during COVID as they provide long-term, dependable income,” says Sabatini, noting that not all net lease assets held up through the challenging year. “Office and retail struggled due to lockdowns and work-from-home mandates, but industrial thrived as e-commerce picked up,” he says.

Those property types remain a challenge for investors today, well into the recovery. “Investors are still grappling with certain property types that were highly impacted by COVID, particularly office,” says Sabatini. “However, there’s optimism on the horizon as more employees return to the office and big tech companies like Google make investments in office space.”

However, the real challenge for net lease investors post-pandemic is competition. New entry into the sector has compressed cap rates to historic lows. “Competition will also remain a challenge as more players continue to enter the net lease market, but our ability to underwrite more complex transactions, purchase all-equity and close quickly has enabled us to continue finding attractive opportunities,” explains Sabatini.

Investor demand should remain strong through next year, thanks in part to low interest rates. “As we head into 2022, the high competition is good news for sellers. “Corporate sellers pursuing a sale-leaseback will be able to secure high valuations for their real estate assets while locking in low rates for the long term,” says Sabatini, noting one upside to all the demand: “New entrants help grow awareness of the net lease sector, and from that standpoint it is a positive. A rising tide lifts all boats.