By Multiple Measures, 2023 Was the Worst for Net Lease in a Decade

Article originally posted on Globe St. on February 1, 2024

Much in CRE during 2023, when compared to the previous year, could be explained away at least partly because 2022, while not earning the top marks, was second or maybe third over the last decade.

However, the data in a new report from Newmark makes it clear that the comparison is charitable. By number of annual net lease transactions, value of transactions, quarterly net lease transaction volume in billions, number of quarterly net lease transactions, average cap rates, and spreads between average cap rates and the 10-year Treasury, 2023 was awful. Terribly, An utter travesty. The worse since 2014, according to data from Newmark.

Anyone who was trying to do business and managed to stay around should congratulate themselves.

Total net lease transactions in 2023 by dollar volume were $36.22 billion. That’s down 53.26% from 2022. But the next lowest volume was in 2014 — $49.3 billion. The highest was in 2021, when the figure hit $96.9 billion.

Breaking the 2023 total down, there was $7.3 billion in office, $9.7 billion in retail, and $19.2 billion in industrial. In 2022, that was $22.5 billion in office, $18.4 billion in retail, and $36.6 billion in industrial. If you compared just industrial in 2022 to all of 2023, the older year still won.

The total number of transaction in in 2022 was 5,571. In 2023, there were 3,311, a 40.6% drop. The average number from 2014 through 2019 was about 5533. In 2021, the top year, there were 6,649.

In most years, quarterly counts of transactions in billions rose from the first quarter to the fourth. During 2023, while the second quarter ($10.5 billion) was higher than the first ($9.7 billion), Q3 dropped to $9.3 billion and Q4 was $6.7 billion. The pattern was similar in 2022, from $23.1 billion to $21.0 billion to $18.3 billion to $15.1 billon.

Look at the number of transactions per quarter and 2022 stands out in another way. The year has three of the four smallest across the whole 2014 through 2023.

Average net lease cap rates had been drifting downward from 2014 to 2022, and then suddenly jumped up for each of the three property types: industrial, retail, and office.