Shifting Capital Boosts Single-Tenant and Net Lease Opportunities

Single-tenant and net-lease properties continue to be hot with investors on the hunt for low-maintenance assets. Investors such as KKR, which is launching a $3 billion net lease platform, are piling capital into this space. With their reliable cash flow, frequent triple-net lease structure, and longer lease terms, STNLs smooth out volatility and create predictability in a portfolio.

Investors are redirecting single-tenant and net lease dollars into new spaces. For example, retail captured just 20% of all investment into the space in 2020 and through mid-year 2021. Compare that to 31% coming out of the last economic downturn. Retail has also seen relatively less capital as a share of total single-tenant and net lease investment since 2014. Drug store pricing is the strongest within retail, but investors are pivoting their capital elsewhere.

Industrial is benefiting from that pivot. From 2015-2019, industrial accounted for about 39% of investment activity in STNL. It topped 50% in 2020 and has captured 46% year-to-date. Office has broadly held market share at 34% this year, close to its 36% share from 2015-2019.

Private capital is selling these assets. Over the past two years, there has been a net outflow from this sector. Cross-border, institutional, and REITs have all been net buyers during that period. As the economy continues to heal, volume should see further gains. Investors are sitting on record amounts of capital, and with impending tax changes, private capital sources may continue to sell.

Download the Midyear 2021 Single Tenant Net Lease Report.