The latest Net Lease Sector Update from Green Street offers further evidence to their previous concerns that credit losses are becoming an increasing problem.

Spenser Allaway, a senior analyst on Green Street's research team and sector head of the Self-Storage and Net Lease sectors, and Harsh Hemnani, an analyst on the Net Lease and Ground Lease sectors, note that the first quarter closed out with credit losses reaching about 100 basis points annualized, in contrast to the 75-basis point HHAlllows of 2022.

The bond market, which tends to be a strong predictor of net lease portfolio credit losses, is pricing wider spreads. That points to even higher NL credit losses over the next 12 months, according to the authors. Green Street is projecting same property net operating income (SP-NOI) to be lower than the long-term sector average. Higher debt costs helping to pressure margins combined with economic uncertainty, keeping a close eye on tenant credit will be important.