Net-leasing investment volume dropped 68.1% year-over-year to $8.1 billion in Q2, according to new research from CBRE Group. The decline for total U.S. commercial real estate over the same period was even greater at 69.9%.
Net leases, in which the tenant pays some or all of the property expenses in addition to rent, includes office, industrial and retail properties.
Office and retail leases fell, while leases for industrial properties increased. The average net lease cap rate was unchanged at 6.3% in Q2 due to limited investment activity.
Net-lease investment across all commercial property classes reached 20.2% of total commercial real estate investment in Q2 2020, up from 13.3% in Q1 2020–the sector’s highest percentage on record, a sign that investors continue to consider long-term leases and credit-worthy tenants to be safe investments during the recession.
Chicago, Philadelphia, Los Angeles, the Inland Empire and Dallas/Ft. Worth had the most net-lease investment volume in Q2. Investors also were increasingly interested in secondary and tertiary markets, with some of the largest four-quarter percentage investment gains occurring in Memphis, Austin, San Antonio and Cincinnati.
The industrial sector’s share of total net-lease investment increased to 48% in Q2 2020.
Retail’s share fell only moderately year-over-year to 25.4% from 28.7%, as investors remained attracted to retailers providing essential services, such as pharmacies and grocery stores.
The office sector, fell to 26.6% from 37.2% year-over-year.