U.S. net-lease investment surged in 2024, led by the industrial & logistics sector, CBRE reported. On a dollar-volume basis, 2024 saw a 13% year-over-year increase to $43.7 billion, boosted by an especially strong fourth quarter.

Industrial & logistics increased its share of net-lease investment activity to 64% in Q4 from 54% a year earlier. In 2024, investment volume for industrial increased 87% from a year earlier.

“The net-lease sector demonstrated remarkable resilience and growth in 2024, driven by its stability and appeal to investors seeking compelling risk-adjusted returns,” said Will Pike, vice chairman of net lease properties for capital markets at CBRE. “We anticipate continued momentum in net-lease investment, especially in retail and the industrial & logistics sector, as investors prioritize low-risk opportunities amid potential capital markets volatility in the first half of 2025.”

The average cap rate rose by nine basis points quarter-over-quarter and 56 bps Y-O-Y to 6.8% in Q4 2024.

Pictured: A net-leased FedEx facility in Portland, OR, which traded for $32 million in 2024. Courtesy B+E.

Even as net lease retail inventory has expanded significantly, growing from $9 billion in 2022 to more than $24 billion today, quick-service restaurants have outperformed expectations and outpaced many other categories within the space, Northmarq says in a new report. “In fact, they are now some of the most sought-after assets for private investors, particularly those seeking reliable cash flow in an otherwise uncertain financial environment,” write Northmarq’s Bryn Feller, Isaiah Harf and Christian Tremblay.

Cap rates for QSR assets have remained relatively stable, hovering between 5% and 6%, even as cap rates for other retail segments have inched higher, Feller, Harf and Tremblay write. “This demonstrates the strong investor appetite for these properties.”

The Northmarq report cited key factors in the strong performance of QSR properties, including low price points that often put these properties “into the sweet spot for private investors with available cash.”
Reduced dependence on 1031 exchange investors is another factor, along with “very long lease terms
and reliable ease of ownership” and a lack of online competition. “You can’t get a fresh, hot burrito
delivered via Amazon, and that’s a major comfort for investors,” the report states.

According to Northmarq’s Single-Tenant Q1 2024 report, investment sales activity hit $11.2 billion, a 26% increase from the previous quarter. While the numbers reflect “a 4.5% decline compared to this time last year,” the Northmarq analysts note that the sector continues to perform consistently. “The first three months of 2024 put the market on a promising trajectory to surpass 2023’s total,” they added.

Investment sales volume by single-tenant asset type was as follows:

• Industrial — $4.03 billion

Cap Rate Increases

Northmarq reported that the average cap rate for the combined net-lease sector increased by 20 basis points (bps) to 6.5%. This represented “the highest average seen since mid-year 2015,” the analysts pointed out. While single-tenant office cap rates topped out at 6.81%, retail remained the lowest at 6.38%. Meanwhile, the industrial cap rate reached 6.55%, or 102 bps higher than the previous year.

“As buyers and sellers continue to adjust their pricing expectations in today’s market, further increases across all sectors should be expected as we move through 2024,” the analysts said.

Changes in Buyer Type

There’s also been a change in who’s buying these net lease properties.  During the past decade, private buyers have been prominent, making up between one-third and one-half of the activity in this sector. But during Q1 2024, public REITs became more active.

“With 36% of the overall single-tenant market, public REITs also dominated market share in the office and retail sectors,” the Northmarq report said. They weren’t as active on the industrial side, however. This doesn’t mean that private buyers are down and out, though.

Still, interest rates remain elevated. As a result, “some individual investors who aren’t being driven to act by a 1031 exchange might decide to rest on the sidelines for a little while longer,” Northmarq analysts said.