BOSTON–The global search for yield and portfolio diversification is driving more foreign investors to the Boston net-lease real estate market, according to the latest research from CBRE.
Boston, along with New York City, San Francisco, Dallas/Ft. Worth, Columbus and Los Angeles, received the most foreign capital out of all U.S. cities last year.
In 2018, foreign investment in the Boston market reached $3.5 billion (up from $2.7 billion in 2017). Additionally, Boston ranked as the #10 market in the U.S. for overall net-lease investment totaling $1.71 billion in 2018.
“With the recent decrease in interest rates, net-lease investors continue to have a strong investment appetite in the Boston market,” said Douglas Jacoby, Executive Vice President, Capital Markets, CBRE. ”In addition, numerous investors look at net-lease assets for security, considering how long this economic cycle has played out.”
In the U.S., foreign investment in net-lease assets—comprising office, industrial and retail properties—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.
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.
Overall 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. 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. 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.