Net-Leased Asset Demand Exceeds Supply

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Buyer demand for net-leased properties will outpace the number of available listings through the end of the year, reported Marcus & Millichap Real Estate Investment Services, Calabasas, California.

"In the short term, many investors doubt the sustainability of the bull equity markets and will continue to seek wealthpreservation plays in the net-leased arena," said Bill Rose, national director of Marcus & Millichap National Retail Group. "In addition, more baby boomers are approaching retirement and looking for stable investments with minimal management oversight."

He added, "When combined with keen interest from major real estate investment trusts [REITs] and institutions, demand from these investors will keep downward pressure on cap rates for buildings occupied by corporate-backed tenants."

Winston Orzechowski, research director with Calkain Companies, Reston, Virginia, said simple supply and demand also helps explain the current shortage of net-leased properties. "The large amount of demand and low supply is tied back to the start of the recession, when construction starts pretty much halted. It takes a while once construction stops for it to commence again and then to finish. We are in what you could call a strong-demand, low-supply, very-low-interest-rate environment,4" he said.

William Hughes, senior vice president of Marcus & Millichap Capital Corporation, said for single-tenant net-leased assets, "most capital sources are willing to consider properties occupied by non-investment-grade tenants, although top-rated tenants remain the primary target. …