On the development front, 43 percent of respondents said there is the “right amount” of development, which is identical to a year ago. Another 24 percent said there is “too little” (essentially unchanged from 25 percent in 2017), while only 12 percent said there is “too much,” up slightly from 11 percent. Another 22 percent said they were unsure.
As part of the survey, we asked respondents to write about what they saw as the biggest changes in the space from 12 months ago and what they saw as the biggest opportunities and challenges for the net lease sector.
Many respondents wrote in about disruptions to investment activity.
“Offering cap rates have decreased and it is very difficult to find properties that will offer a competitive return to investors with traditional LTV assumptions. Also, with interest rates increasing, it is going to become even more difficult to find properties that work for investors,” one respondent wrote.
But overall, sentiment was positive and respondents still see opportunities throughout the sector.
In terms of potential opportunities, one respondent wrote, “There are diamonds in the rough in secondary/tertiary markets—properties in submarkets relatively isolated from new competition.”
Another saw potential in the grocery sector, “particularly opportunities created by the influx of German stores Lidl and Aldi. We are experiencing a grocery store war.”
And a lot of respondents mentioned Amazon—in both positive and negative terms. They pointed to the online retail giant as creating ripple effects for both retail and industrial net lease properties—hurting one sector, while bolstering the prospects of the other.
As one respondent succinctly put it, “Amazon’s investment strategy is influencing a lot of different businesses.”
Respondents to the survey work across the spectrum of net lease property types. The most prevalent net lease property type identified was restaurants/fast food (44 percent). That was followed by miscellaneous retail (43 percent), office (41 percent), industrial (39 percent), medical office/healthcare (35 percent), drugstores (32 percent), bank/financial (29 percent), convenience stores/discount (28 percent), grocery stores (25 percent), auto (19 percent), fitness (15 percent) and government (12 percent).
Survey methodology:
The NREI research report on the net lease sector was completed via online surveys distributed to readers of NREI in February. The survey yielded 490 responses. Recipients were asked what regions they operated in (and were allowed to select multiple regions). Overall, 45 percent said they operated in the South, followed by the East (45 percent), the West (40 percent) and the Midwest (36 percent). About half of respondents (49 percent) hold the titles of owner, partner, president, chairman, CEO or CFO.