Respondents are tracking a variety of issues that could present market opportunities and challenges ahead. The possibility of rising interest rates, cap rate compression and 1031 money that is “too eager” to buy replacement assets are concerns that are top of mind for some survey participants. “The market is overdue for a correction, which has already affected the residential market in NYC, and NYC is typically a leading market indicator,” wrote one respondent.
One concern is the proliferation of new and unproven investors in the net-lease sector that may not have the experience or financial strength to be able to withstand potential downturns, notes Sabatini. “The need to sell or refinance when markets are down could be unsettling for them and potentially the larger net lease space,” he says.
When asked about the biggest opportunities ahead in net lease in the coming year, many noted the ability to redevelop or reposition vacant or older buildings, as well as acquire assets with shorter term leases. “Opportunities are limited because of continued cap rate compression. However, there may be some opportunities related to retail closures,” wrote one respondent. It remains to be seen how the upcoming presidential election could affect overall views on the economy and the net lease sector as the year progresses. There could be some shifts in sentiment once a democratic candidate is selected and there is more clarity on the frontrunner closer to November. “The biggest headwinds ahead are more political than fiscal,” notes Chou. “I would anticipate that 2020 is going to be pretty consistent to 2019.”
