Mega deals in the net lease U.S. office sector propelled sales to record high volumes in the fourth quarter of 2016, including boosts in sale leaseback and corporate buyback activity. However, limited retail activity and a slowdown in industrial deal flow brought overall net lease volumes down 18.6 percent at year-end. Pricing diverged across sectors as office cap rates saw mild compression, industrial pricing stabilized, and fourth quarter retail cap rates started to soften in the final months of the year.
Overall net lease volumes normalized to a three-year average as office sales increased year-over-year, bringing total sales to $45.6 billion for 2016.
Will this activity continue in 2017?
The following are three trends our local capital markets experts expect to see this year.
- Office will continue to be a preferred type of property
“Institutional investors have been acquiring office assets to achieve higher yields,” said JLL Senior Vice President Tivon Moffit. “This trend will continue to drive interest in single tenant net leased office property throughout the U.S. with both long-term and short-term leased assets.”
- Industrial investment will increase in secondary markets where foreign investors aren’t focusing
“The importance of domestic manufacturing and distribution by our new administration will have a positive impact on secondary and tertiary markets in the Midwest and South,” said JLL Senior Vice President Peter Bauman. “Investors can expect to find higher yields in these markets.”
- New retail development will expand as specialty retailers continue to cause disruption
“The success of entertainment-based retailers, high-quality convenience stores and quick-service restaurants is not expected to slow down any time soon,” said JLL Associate John Paul Mulhern. “On the contrary, high quality retail brands will continue to expand and attract aggressive yields.”
Moffitt, Bauman and Mulhern joined JLL in August 2016. To learn more about what happened in Q4 2016 and what to watch for in 2017, contact these experts and read JLL’s Net Lease First Look.