Net lease investors areheading to the Inland Empire for opportunities. According to arecent report from CBRE, net lease investmentvolumes grew 105% last year in the Inland Empire, the secondstrongest gains in the country and a total of $3.2 billion. In2018, net lease investment volumes totaled $1.5 billion.

|

"Development of commercial and residential projects ceased toexist after the Great Recession in 2008, while the market has beenin a 10-year bull run and housing growth and demand for industrialreal estate, particularly in the Inland Empire, have beenincredible strong," Ian Schroeder, an SVP at CBRE,tells GlobeSt.com. "So demand for this type of real estate has beenvery strong. We have seen a number of large net-leased industrialsales achieve record cap rates, which undoubtedly contributed tothe region's higher numbers, as well."

|

The retail market has also helped to drive investment activity."While the multi-tenant shopping center market has lagged the caprates of single-tenant properties especially in non-core marketslike the Inland Empire, owners are finding it accretive to break uptheir multi-retailer centers to maximize proceeds," saysSchroeder.

|

In terms of annual gains, the Inland Empire came in second toSan Diego, and in terms of total investment volume, the InlandEmpire came in sixth in the nation, behind Los Angeles. The markethas certainly gained from a lack of opportunities in Los Angelesand Orange County. "There hasn't been the same level of developmentin Los Angeles and Orange County, which has resulted in very littlesupply in those areas," says Schroeder. "If you're a net-leaseinvestor in an exchange and you are looking to buy in SouthernCalifornia, you end up looking at properties in the Inland Empirebecause there is more inventory and better yields."

|

Investors are largely heading to the Inland Empire to chaseyield. "We are seeing record low cap rates across SouthernCalifornia," says Schroeder. "It's really a supply and demandissue.  There aren't enough quality assets—pertaining tocredit and location—to meet investor demand, which isstill largely driven by the 1031-exchange markets."

|

The growth that surged in 2019 could stall this year, with someobstacles on the horizon. "It's hard to say how this year will playout especially with the upcoming elections and the current coronavirus situation," says Schroeder. "If apartment market sales stayrobust, that will continue to create demand in the net lease spacein the Inland Empire and across the region. Also, withyields around the world tracking toward zero, I believenet lease assets will offer a nice place to find yield on hardassets. And if the treasury stays in record lowterritories, borrowing costs will follow and cap rates will likelydo the same."

Want to continue reading?
Become a Free ALM Digital Reader.

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

Kelsi Maree Borland

Kelsi Maree Borland is a freelance journalist and magazine writer based in Los Angeles, California. For more than 5 years, she has extensively reported on the commercial real estate industry, covering major deals across all commercial asset classes, investment strategy and capital markets trends, market commentary, economic trends and new technologies disrupting and revolutionizing the industry. Her work appears daily on GlobeSt.com and regularly in Real Estate Forum Magazine. As a magazine writer, she covers lifestyle and travel trends. Her work has appeared in Angeleno, Los Angeles Magazine, Travel and Leisure and more.