Office sales stabilized year-over-year due to large third quarter transactions, while overall net lease sales volumes dropped 20.5% to $31.3 billion due to declines in retail. Industrial sales saw increases in secondary and tertiary markets but an overall decline of 31.1%. Retail saw a pause in sale leaseback activity and limited large deals, bringing volumes down 37.9% year-over-year.

1. Office sales stabilize
while retail drives the
overall net lease sales
volumes to drop 20.5
percent year-over-
year, totaling $31.3
billion year-to-date
First look at Net Lease
United States | Q3 2016
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Source: JLL Research, RCA (transactions greater than $5 million)
U.S. Office net lease investment U.S. Industrial net lease investment U.S. Retail net lease investment
Investment sales
(YTD, billions of $US)
Average cap rate
(%)
Investment sales
(YTD, billions of $US)
Average cap rate
(%)
Investment sales
(YTD, billions of $US)
Average cap rate
(%)
$15.8 6.8% $8.4 6.3% $7.1 5.6%
Investmentsalevolumes($M)
A sale leaseback volume decline of 21.7 percent year-over-year is not
indicative of full year-potential. Third quarter volumes nearly doubled
the first half of the year with increases expected to continue through the
fourth quarter.
Sales volumes have stabilized year-over-
year for the net lease office sector due to
twelve large transactions in the third quarter
which accounted for 68.9 percent of the
quarter’s office sales. Cap rates remain
stable for the sector year-over-year. The
office sector drove sale leaseback gains,
with an increase of 9.5 percent year-over-
year, a result of over $2.1 billion in sales
closing in the third quarter.
Stronger acquisition discipline, changes in investment
strategy create a shift in net lease buyer dynamics
As investors tighten acquisition discipline to mitigate risks associated with
supply constraints, cycle longevity concerns and global market activity,
the net lease sector is steadily gaining favorability. Lease quality, tenant
credit and location criticality are allowing investors to find yield in net
leased assets with long-term stability and growth. Equity funds and
institutional buyers have increased net lease sales volumes by 55.9 and
56.7 percent, respectively, year-over-year. In relation to their overall
investments across all sectors, net lease-specific investments have
increased 63.0 percent and 81.3 percent, respectively, year-over-year.
Likewise, foreign buyers favoring office assets have increased their
interest in net lease assets by 68.8 percent year-over-year relative to all
sector investments. Increased focus on the net lease sector is likely to
continue as acquisition strategies adjust to market changes.
Secondary and tertiary markets drove activity
for the net lease industrial sector through
the third quarter with yields favored by
institutional and private buyers alike. Cap
rates in secondary markets softened four
basis points year-to-date, while primary and
tertiary markets continued to compress 22
and 34 basis points, respectively. Sale
leaseback volume increased 13.2 percent
year-over-year, despite overall net lease
industrial sales declining 31.1 percent.
A pause in retail sale leaseback activity
and limited large deals have paralleled flat
and stable pricing, bringing sales volumes
down 37.9 percent year-over-year. With
this, private buyers with more yield
flexibility have driven acquisitions for single
tenant retail assets, acquiring 72.9 percent
of the year’s total transactions.
Consequently, cap rates continue to
compress mildly across all market types,
down an average of 25 basis points.
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
$0
$10,000
$20,000
$30,000
$40,000
$50,000
YTD
2006
YTD
2007
YTD
2008
YTD
2009
YTD
2010
YTD
2011
YTD
2012
YTD
2013
YTD
2014
YTD
2015
YTD
2016
Caprate(%)
Netleaseinvestmentsalevolumes
(millionsof$US)
Net lease office Net lease industrial Net lease retail
Net lease office cap rate Net lease industrial cap rate Net lease retail cap rate
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD
2016
Single tenant
Sale leaseback