Experts Weigh In on Latest Net Lease Trends

“Net lease is faring better than virtually any other asset class.”

LAS VEGAS—Interest rates are likely to remain stable leading up to the election, and with positive inflation data, B+E CEO Camille Renshaw foresees a potential decrease in the Fed rate post-election. In a recent conversation with GlobeSt.com surrounding the ICSC conference in Las Vegas, Renshaw highlighted several retail trends she’s observed.

Renshaw points out the popularity of sale leasebacks among both buyers and sellers. “Buyers are attracted to the long-term stable returns, while sellers are keen on expanding their companies and appreciate the lower cap rates compared to current borrowing costs,” she explains.

She also observes an uptick in inventory across most segments quarter over quarter, with pricing adjusting accordingly.

Another noteworthy observation is the stagnant trading of Walgreens shares, coinciding with a surge in inventory. This, she says, is attributed to the loss of their investment grade rating from Moody’s. Additionally, Renshaw highlights the persistent high demand and limited supply for early learning properties, car washes, big box properties, collision companies, and groceries.

SRS Capital Markets also recently discussed net lease retail. Managing Principal Matthew Mousavi shares says that “Notwithstanding the current interest rate pressures, market turmoil and the disconnect on pricing between buyers and sellers, net lease is faring better than virtually any other asset class within the commercial real estate sector.”

Mousavi further adds, “The fact that we’re still transacting net lease at cap rates well below interest rates to all cash and negative leveraged buyers is a clear indication that net lease remains in strong demand. Investors, and all the sidelined capital, are still hungry for deals. As the market stabilizes on rates and valuations, we expect transactional activity to pick up in 2024.

According to Andrew Fallon, Executive Managing Director and Market Leader, “Most active buyers are focused on acquiring best-in-class credit tenants, well-located assets with strong real estate fundamentals, and they are willing to pay a premium. Our weighted average cap rate for Mid-Atlantic net lease assets was sub 6% at 5.68% for Q1 2024. Many of these deals were long-term corporate ground leases and/or newly QSRs, C-Stores and necessity retail with investment grade credit.”

As Mousavi says, “Looking ahead, we expect more of the same throughout the year with declines in volume and upward movement on yields. We will hopefully see an improvement in the rate environment and have a firmer outlook on its trajectory as we move towards the end of the year.”

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