It’s pretty clear that in the current market the industrial asset class is the leader among net lease investors, and even commercial real estate in general. However, Retail is trailing very close behind. Overall, the net lease market has maintained business throughout the recent global health crisis, with an increase of 15.5% in its share of the total market. However, before the rise of COVID-19, 25% of the market was made up of retail, but during the crisis, the majority was split between office and industrial. Now retail makes up only 16% of the market.
These trends are ever-fluctuating, based on developments in different asset classes and factors continuously changing in the net lease market.
“Retail is making a comeback. There is a massive pent-up demand and people want to get out,” says Mike Margiotta, Principal with 1045 Real Estate. “During the health crisis, retail was a risky endeavor, but now tenants are wanting to sign leases,” he continues. “Negotiating power for retail leases has moved back to the landlords. During the pandemic tenants were forced to put pressure where they could and landlords worked with them, but now the demand has returned, and we are seeing landlords regaining some control.”
Net lease investors have also been choosing to value more from certain markets. For example, California, Dallas, and Houston, seem to favor retail, which is working to their benefit. Other markets benefiting from the retail industry are Philadelphia, Chicago, New York, and Miami.
“Many of the trends in the market are dependent on the product available in these areas, as well as solid, responsible tenants who are willing and eager to sign long-term leases,” Margiotta says.