Net-Lease Investment Outperforms Broader Commercial Real Estate Market With Boston Among Top Targets

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Doug Jacoby

Boston, MA  U.S. net-lease investment is outpacing the broader commercial real estate market in 2019, with Boston among the leading target markets for investors, according to the latest research from CBRE.

Boston was among the top-three markets for net-lease investment in Q2 2019 with total volume of $1.108 billion—up 277% year-over-year. For the year-ending Q2 2019, net-lease investment in Boston totaled $2.62 billion——up 164% year-over-year.

“Boston remains squarely in the sights of both domestic and foreign investors as a prime target for acquisitions. Boston continues to be a dynamic market with strong growth and combined with the recent decrease in borrowing costs, buyers continue to be aggressive in acquiring triple net assets,” said Douglas Jacoby, an executive vice president of Capital Markets for CBRE in Boston.

Investors are increasingly focused on net-lease investment opportunities in high-growth secondary markets. While gateway markets like Boston and San Francisco had the largest year-over-year gains in investment volume in Q2 2019, markets such as the Inland Empire, San Diego and the East Bay made the top-10 list.

Total net-lease investment in the U.S.—comprising office, industrial and retail properties—increased by 17.2% year-over-year in H1 2019 to $33.4 billion, with total commercial real estate volume growth at 13.4% over the same period.

Net-lease investment volume in Q2 2019 was the second-highest quarterly total on record at $20.6 billion and up by 33.8% year-over-year. For the year-ending Q2 2019, net-lease investment totaled $74.2 billion—the highest four-quarter total since CBRE began tracking the market in 2002.

Net-lease investment volume in Q2 2019 was driven by gains in the office sector (65.7% year-over-year growth) and retail (52.2%), while industrial remained nearly unchanged (0.6%).

Cross-Border Net-Lease Investment

The global search for yield and portfolio diversification is attracting global investors to the U.S. net-lease market. Cross-border capital for net-lease properties reached $3.9 billion in Q2 2019⁠—a 78.4% increase from Q2 2018 and the second-highest quarterly total on record.

International buyers accounted for 18.8% of net-lease transaction volume in Q2 2019—their highest share since 2015. New York City, San Francisco, Miami, Houston, Los Angeles and Chicago received the most foreign capital for net-lease investment. Over the past two years, the top country sources of capital have been Canada, Germany and South Korea.

Foreign investment in U.S. net-lease properties has averaged more than $8 billion annually over the past four years from approximately $3 billion annually between 2011 and 2014.