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Emerging From the Pandemic On Solid Ground

Sentiment remains strong for net lease investments.

Net lease investments are particularly appealing during times of uncertainty, and the past 15 months have been nothing if not uncertain. Faced with a global pandemic and a shaky economy, investors were eager to secure real estate properties with long-term leases, credit worthy tenants, and perhaps most important, an element of necessity.

WMRE’s annual Net Lease Investment Survey confirmed the resiliency of the net lease sector and uncovered some surprising sentiments. Last year’s survey was completed just prior to the onset of the COVID-19 pandemic. What’s notable about the current results is that sentiments on a lot of questions remained consistent with pre-pandemic levels, although there are areas—particularly the outlook for subtypes of net lease properties—where the numbers moved considerably compared to prior years.

The net lease sector, like the overall commercial real estate industry, suffered from COVID-19 paralysis throughout most of 2020. But net lease investment volumes bounced back more quickly than for multitenant assets, attracting interest from both new and existing investors.

Though net lease investment volume decreased 24.3 percent year-over-year to $60.5 billion in 2020, that was less of a decline than the 31 percent drop in overall commercial real estate investment sales volume, according to CBRE.

“The pace of the rebound and investor resilience and adaptability were the most surprising outcomes of the 2020,” says Coler Yoakam, JLL senior managing director and co-head of JLL’s net Lease/CTL group, capital markets. “We went from a virtual market standstill in March and April to the highest level of transaction volume ever in Q4.”

CBRE found that net lease investment accounted for 14.8 percent of total commercial real estate investment volume in 2020, above the five-year pre-COVID-19 average of 11.7 percent. The same pattern occurred during the Great Recession when the net lease share of total investment volume expanded to 15.1 percent in 2009.

Survey methodology: The WMRE research report on the net lease sector was completed via online surveys distributed to readers of WMRE in March 2021. The survey yielded 158 qualified responses with the vast majority at the executive level of vice president or higher. Nearly half (48 percent) are private investors. Survey respondents are active across different property types with the largest percentage involved in multifamily at 58 percent, followed by industrial and retail, both at 52 percent. Survey respondents are active nationally, with the biggest percentages operating in the South/Southeast/Southwest and West/Mountain/Pacific, both 42 percent, East at 36 percent, and Midwest/East-West North Central at 34 percent.