Net Lease Sector Slows in 2018 as Transactions Fall and Cap Rates Rise

Our H2 2018 Single Tenant Net Lease Retail Report states that the market for net lease retail properties in the U.S. weakened moderately in 2018, in contrast to the broad recovery in the broader commercial real estate (CRE) capital markets. Sales volumes fell sharply despite a significant pick-up in overall commercial property sales, especially in the retail sector. Similarly, capitalization rates (cap rates) rose modestly in the net lease sector as prices fell, while CRE markets overall saw stable-to-falling cap rates and positive price appreciation.

Key Takeaways

• The dollar volume of single tenant net lease (STNL) retail property transactions fell 10.6% in 2018 versus 2017, while the number of transactions declined 2.6% year over year.
• Similarly, of the key retail chains we track, STNL transactions decreased 5.5% in 2018 versus a year earlier, while volume was down 9.9%.
• Of the major sectors we track, fast casual restaurants saw the greatest pickup in volume, in part due to three significant Chili’s portfolio sales.
• The volume of both portfolio sales and single-asset sales both declined last year, though sales through portfolios fell less (3.6% versus 11.1%, respectively).
• According to Creditntell, of every incremental dollar added to retail, a quarter is captured by e-commerce retailers—a factor that will continue to play out in investor minds as they evaluate opportunities.

For more insights, explore the H2 2018 Single Tenant Net Lease Retail Report.