U.S net-lease investment, comprising office, industrial and retail properties, increased by 30.2% year-over-year to $20.9 billion in Q3 2019, the third-highest quarterly total on record, according to the latest research from CBRE.
Investment volume in Q3 2019 was driven by a 48.5% year-over-year gain for the industrial sector and a 22.1% gain for the office sector, with the retail sector increasing by 8.8%.
Net-lease investment volume year-to-date through Q3 2019 climbed 24% year-over-year to $55.2 billion and outpaced the broader commercial real estate market. The net-lease share of total commercial real estate investment stood at 14.6% in Q3 2019, one of the highest quarterly shares of this cycle and higher than the 11%-to-13% range held since 2012. This suggests sustained investor demand for net-lease assets that will see full-year volume surpass 2018’s record total of $69.6 billion.
“The net-lease sector continues to perform strongly with significant levels of year-over-year growth across office, industrial and retail assets. We expect this trend to continue as both domestic and international buyers are placing a heightened emphasis on achieving the high risk-adjusted returns provided by this asset class.”
Will Pike, vice chairman of Net Lease Properties for Capital Markets at CBRE
Investors are increasingly focused on net-lease investment opportunities in high-growth secondary markets, with the Inland Empire (Southern California) and Portland showing the largest percentage gains. Among gateway markets, Los Angeles and Miami had the largest year-over-year gains.
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Foreign Investment in U.S. Net-Lease Assets Up 18.8% Year-to-date
The global search for yield and portfolio diversification is attracting international investors to the U.S. net-lease market. Cross-border capital for net-lease properties reached $6.8 billion year-to-date through Q3 2019—up 18.8% from the same period last year.
Foreign buyers accounted for just 4.7% of net-lease investment volume in Q3 2019, compared with their 18.8% share in Q2 2019. Miami, Dallas/Ft. Worth, Los Angeles, San Francisco, and Charlotte received the most foreign capital for net-lease investment in Q3 2019. Over the past two years, the top countries for inbound capital are Canada, Germany and Singapore.
Foreign investment in U.S. net-lease properties has averaged more than $8 billion annually over the past four years from $3.1 billion annually between 2011 and 2014.
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