L.A. Net Lease Investment Sales Up 62% This Year

Los Angeles net lease investment sales are up significantly for the year. According to research from CBRE, net lease investment in the market increased 62% in the second quarter, making L.A. the number two market for net lease sales, following New York City. In the second quarter, the market had a total net lease investment volume of $1.22 billion.

“The density of the population has been the primary driver of the activity, along with the strength of the economy,” Sterling Champ, EVP at CBRE, tells GlobeSt.com. “Even when you see downturns in Los Angeles, there still seems to be pretty strong commercial activity, just because of the density of the population. In over any 10-year period, we’ve certainly a full recovery, and so I have a very positive outlook on the economy and the local economy in the city of Los Angeles.”

Industrial assets have led the Los Angeles market for net lease investment activity, which isn’t surprising. Industrial is the darling of investment activity in the Los Angeles market overall, and demand and capital allocations for industrial are only growing. “Industrial is the number one asset class,” says Champ. “In industrial, it doesn’t cost that much to replace a tenant, so investors love industrial. Even if you lose a tenant, which is the biggest risk, re-tenanting is less expansive than class-A office.”

Retail is the next most popular investment for net lease, and also an active market for investors. “Retail is also strong, and it follows closely behind,” says Champ. “Selective retail is still very strong, particularly experiential retail and retail that is not likely to be impacted by the Amazon-effect and the effect of online shopping.”

The second quarter is always a particularly healthy time of the year for net lease investment, but the dramatic 60-plus% increase in investment activity was largely driven by a strong stock market and decreasing interest rates in the second quarter. “We also have an abundance of 1031 exchange buyers that decided to sell other assets and were back in the market looking for other assets,” adds Champ. “The economic outlook was strong, and we also continue to see rents growing. In some submarkets in Los Angeles, there was rent growth greater than 5%. Investors look at that growth and know that they can make a secure investment while experiencing rent growth and appreciation.”

Champ doesn’t think the second quarter activity was a fluke, either. He expects healthy performance through the end of the year. “I think activity will be strong through the end of the year because we continue to see good product coming on the market and we continue to see demand from investors in Los Angeles,” he says.