|This report was provided by global real estate services firm CBRE
Los Angeles ranked 4th and Orange County ranked 13th among the top 20 markets in U.S. net-lease investment in 2018, according to a recent report from CBRE. Investment in Los Angeles net-lease assets—comprising office, industrial and retail properties— totaled $3.3 bil in 2018, an increase of 38% on the previous year’s investment volume, while investment in Orange County net-lease assets reached $1.17 bil last year.
Los Angeles was also ranked among the top six markets that received the most foreign capital net-lease investment last year, alongside New York City, San Francisco, Boston, Dallas/Ft. Worth and Columbus. International buyers increased investment in U.S. net-lease properties by $8.8 bil in 2018—a 30.1% increase from the previous year and the second-highest level on record.
Overall, rising demand for U.S. net-lease real estate led to $68.3 bil 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, industrial, and retail assets. In Q1 2019, Los Angeles was home to two of the top 15 net-lease transactions in the U.S. as Hackman Capital Purchased CBS Television City for $750 mil and Access Industries purchased the former Ford Factory in Downtown LA for $195 mil. 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.
“Southern California triple-net properties remain among the most sought after among private investors,” said Los Angeles-based Senior Vice President Alex Kozakov, who is focused on retail investments in the region. “The demand has pushed several of our cap rate sales below 4% as many of the assets are sold all-cash and investors view them as commodities due to the management free and credit-backed leases.”
Added team member Patrick Wade, “With the increasing population density and job growth in Southern California, most of the tenants in these triple-net properties can afford the region’s rent premiums due to their stronger-than-the-national-average store sales.”
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 bil 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 bil annually over the past four years from about $3 bil annually between 2011 and 2014.
The top countries of origin for foreign investment in U.S. net-lease properties from 2016 to 2018 were Canada ($5.55 bil), South Korea ($3.28 bil) and China ($3.22 bil). 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 bil 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.
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