Net Lease Investment Up Nearly 40% in Phoenix

Phoenix is among the top markets in the country for net lease investment activity. According to a recent report from CBRE, net lease investment in the third quarter alone totaled $863 million in Phoenix, representing a 39.2% increase. So far this year, net lease investment has totaled $1.77 billion, an increase of 8.9%.

“Phoenix is seeing record-level investment activity due to its strong fundamentals and economic activity,” Joe Compagno, SVP at CBRE, tells GlobeSt.com. “Phoenix’s population and employment growth are among the highest in the nation. Phoenix also provides superior cap rates compared to similar investments in California.”

Phoenix isn’t alone. Net lease investment is up nationally as well, and is outpacing other commercial real estate investment. In Phoenix, investors are targeting strong credit and national tenants. “The most attractive net lease properties consist of long-term leases to publicly traded companies with strong credit,” says Compagno. “Investors treat these properties similar to a bond due to their steady, low-risk returns. There is an increased demand for the tenancy of publicly traded companies due to the transparency of financial health and performance.”

It isn’t surprising to see Phoenix ranking at the top of the list for net lease investment. The market has been a target for several asset classes, namely multifamily and industrial, and institutional players have recently become more active. “Phoenix has become one of the top real estate markets in the Western United States,” says Compagno. “Its reliability and affordability continues to attract the migration of employers and employees. Phoenix is appealing to foreign investors because it is a stable economy poised for continued growth and provides exceptional risk-adjusted returns for investors.”

Compagno expects the same appetite for net lease and investment momentum next year. “I expect to see similar investment activity in 2020,” he says. “The interest rate cuts in 2019 will allow investors to continue financing their investments at a low cost of capital. In addition, the yield available in net lease properties remains attractive in comparison to the historically low yields in the bond market.”