Net Lease Real Estate
As of the second quarter of 2020, the trailing 12-month U.S. single-tenant transaction volume totaled $67 billion, according to Real Capital Analytics (RCA). In the first quarter, COVID-19’s impact on volume was minimal; however, the impact is clear in the second quarter, with volume down 19% quarter-over-quarter. The decrease in volume was more notable in some sectors than others, with office and retail down 22% and 26%, respectively, while industrial was only down 12%. This decline in volume could be due to a number of factors, including site closures, difficulties with due diligence, and a pricing disconnect between buyers and sellers. The sale-leaseback market may see an increase in volume as more companies need capital.
In the second quarter, the pandemic’s impact on cap rates was more muted than its impact on volume. Office and retail cap rates increased slightly, while industrial cap rates compressed five basis points. While retail cap rates have slowly increased since the third quarter of 2017, office and industrial rates have largely decreased.
Across the net lease industry, rent collections remain a key topic of focus. On average, public REITs with more retail exposure have been collecting less rent than those with more industrial exposure. According to Green Street Advisors, the average net lease REIT collected 75% of rent in April 2020.
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Retail and office cap rates increased in Q2 2020, while industrial cap rates compressed.
After growing substantially for most of 2019, single-tenant volume declined in Q2 2020.