Industrial Net Lease Will Continue Its Hot Streak

Investment activity and cap rates in the industrial net lease sector “appear to be holding up well” despite rising costs of capital, and experts predict activity to continue apace through the end of the year as sellers bring more inventory to market.

Analysts at B+E Net Lease noticed that while recent rate hikes by the Federal Reserve have pushed some in the market to press pause while assets reprice,  the interruption “is more evident on the buy side where investors are reevaluating acquisition criteria and financing strategies given the fluctuation in interest rates.”  Demand is still outpacing supply for credit tenants, and valuations remain strong as more owners look to sell in the current environment. B+E predicts that this demand, coupled with above-average e-commerce activity in the holiday shopping season, will keep valuations strong.

“In 2023, we expect Industrial activity to remain robust, but cap rates will push upwards for the properties valued at over $5M – basically all properties that require debt,” Camille Renshaw, CEO and co-founder of B+E Net Lease, tells GlobeSt exclusively.  ”Cap rates will remain surprisingly compressed for properties that do not require debt.”

The flight to quality is also expected to continue amid market uncertainty: NNN FedEx assets, for example, are “highly sought after” by investors and “are generating very competitive pricing.” According to B+E’s, such assets are listing at an average asking price of approximately $15,585,000 as of November with an average cap rate of 5.27% among transactions listed currently, more than 50 basis points lower than the 5.8% average cap rate last year.

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