Capital Is Chasing STNL As More Records Shatter

Domestic and international capital is flooding the single-tenant net lease space, with sales volume from the second half of last year hitting $64 billion, 40% above same-period numbers in 2019.

A record $100 billion in single-tenant and net lease deals were completed last year, according to research from Colliers, with institutional capital and private equity leading the charge toward the space. Institutional, REIT, and cross-border capital sources accounted for almost 60% of all acquisition volume last year in the space, compared with 43% for the broader market.

Colliers notes that KKR’s Strategic Lease Partners accounted for six deals totaling $780 million, while Blackstone and Brookfield each claimed several “headline-making” transactions last year. In addition, Colliers notes, Carlyle has announced plans to acquire an 18.3 million square foot net lease portfolio from iStar for $3.07 billion. 

“STNL assets’ lower cost of operation, consistent and reliable cash flow, and credit-worthy tenancy appeal to a wide range of investors,” Colliers notes in the report. “In a rising interest rate environment, this steady, predictable cash flow will remain attractive to buyers looking to mitigate risk.”

Retail STNL deals broke records in 2021 as well, with fourth quarter volume topping $9.5 billion and annual volume shattering the 2015 record at $21.2 billion. Meanwhile, median cap rates fell to a historic low of 5.6%, with STNL assets showing the strongest cap rate compression of all retail property types.

“Overall retail price gains were more substantial than single-tenant and drug store properties. These assets are less volatile due to their safety and performance throughout cycles,” the report notes. “Still, this did not dissuade investors, as volume for both asset types was higher than one year prior. In 2021, single-tenant retail saw a price appreciation of 7.5%, while drug stores increased in value by 3.8%. Grocery gained 18.5%. Overall retail price growth clocked in at 21.5%, as investors were willing to move out along the risk spectrum in the second half of the year.”

Industrial saw $32.7 billion in STNL deal volume in the second half of the year and accounted for nearly half of all STNL deals; the 2021 total of $49.4 billion was also nearly 50% higher than 2019 levels. Cap rates also compressed with the top quartile of deals remaining in the low-to-mid 4% range.

“Pricing across the industrial landscape is nothing short of astounding,” the report notes, adding that overall industrial pricing increased 29.2% last year, while single-tenant pricing rose 25.6%.

Single-tenant office sales shot up 53% year-over-year, while median cap rates compressed 20 basis points to 5.9%, according to Colliers. Total STNL volume was just shy of $29 billion, in line with 2019 levels, but volume rose to $17.7 billion in the second half, marking the strongest close to a year on record. Single-tenant office asset pricing increased 13.3% last year, a number that is in line with the overall sector

“Single-tenant office is the most institutional of the asset classes. In 2021, cross-border, institutional, or REIT capital drove 68% of all acquisitions, the highest aggregate share in at least a decade,” Colliers notes. “All three groups were net buyers on the year, with private sources seeing capital outflows. With life science gaining considerable attention in institutional circles, expect more capital to chase this asset class and its net lease structure.”