Investors are increasingly focused on net-lease investment opportunities in high-growth markets such as Minneapolis, according to the latest research from CBRE. Investment in Minneapolis net-lease assets—comprising office, industrial and retail properties— totaled $942 million in 2018, an increase of 41% on the previous year’s investment volume.
Other markets such as Phoenix, Seattle, Baltimore, Columbus and Atlanta made the top-10 growth list with a combined $6 billion in net-lease investment volume.
Overall, rising demand for U.S. net-lease real estate led to $68.3 billion in investment volume in 2018—the highest annual total since CBRE began tracking the market in 2002—with gateway markets such as New York City, Washington, D.C. and Chicago having the largest gains. Net-lease acquisitions’ share of overall commercial real estate volume has been in the 11%-to-12% range since 2012, suggesting sustained strong investor demand in the sector.
Net-lease transaction volume in the U.S. is expected to remain elevated in 2019, with increasing investor demand for net-lease office and industrial assets. Net-lease investment volume has totaled $278 million in Minneapolis to the end of April 2019.
“Minneapolis has remained strong, as we continue to see consistent growth in net-lease investment year-over-year,” said CBRE’s Matt Hazelton. “This trend looks like it will remain through 2019 and into 2020, with Q1 investments at the current pace so far indicating total higher volume when compared to 2018.”
Cross-border net-lease investment
The global search for yield and portfolio diversification is driving more foreign investors to the U.S. net-lease real estate market. Foreign investment in net-lease assets reached $1.9 billion in Q1 2019, up by 6.6% from Q1 2018’s total. International investors accounted for an even larger share of net-lease investment (15.1%) in Q1 2019 than the same period last year (12.9%). Foreign investment in net-lease properties has averaged more than $8 billion annually over the past four years from about $3 billion annually between 2011 and 2014.
International buyers increased investment in U.S. net-lease properties by $8.8 billion in 2018—a 30.1% increase from the previous year and the second-highest level on record. New York City, San Francisco, Boston, Dallas/Ft. Worth, Columbus and Los Angeles received the most foreign capital.
The top countries of origin for foreign investment in U.S. net-lease properties from 2016 to 2018 were Canada ($5.55 billion), South Korea ($3.28 billion) and China ($3.22 billion). These three countries accounted for more than half of all foreign investment in the U.S. net-lease market over this period. Canadian and Chinese investors primarily targeted industrial properties, while South Korean investors overwhelmingly preferred office product.
“Foreign investors’ appetite for U.S. net-lease properties has increased more than any other investor group, adding nearly $21 billion to their holdings since 2014. This is further evidence that global capital flows prioritize the risk adjusted returns of the net lease sector and will continue to invest in the asset class,” said Will Pike, vice chairman of Net Lease Properties for Capital Markets.