Net Lease Real Estate

The trailing 12-month U.S. single-tenant transaction volume totaled $38 billion as of the fourth quarter of 2023, according to Real Capital Analytics (RCA). Volumes have continued to fall in each quarter since the peak recorded in the second quarter of 2022, reaching an aggregate decline of 67%. Since the peak, office asset volume declined by 77%, industrial asset volume declined by 68%, and retail asset volume declined by 54%.

At the same time, single-tenant cap rates have consistently recorded quarterly increases, from a low of 5.6% in the second quarter of 2022 to 6.4% as of the fourth quarter of 2023. The increase in cap rates has been partially driven by higher base rates and higher borrowing spreads, both of which have shown signs of tightening in recent months, which may bode well for cap rates. The office sector, however, remains challenged, and cap rates in office are at the highest levels since 2017 and trending upward.

Looking ahead, there are several long-term trends that we expect will drive an increase in sale-leasebacks, including manufacturing onshoring and capex spending on automation and the energy transition.