The Long Run: What’s Driving Net Lease Investment

Net lease assets are attracting more institutional capital. New Mountain Capital’s Teddy Kaplan and CBRE’s Will Pike explore why this resilient, tax-efficient investment strategy is gaining favor.Attractive in volatile markets: Positioned as a hybrid asset class—part real estate and part structured finance, net lease investments offer cash flow backed by quality credit tenants.Manufacturing momentum: Production facilities are emerging as high-performing assets due to their strong cash flow and tenant investment in infrastructure.Sale-leasebacks as strategic tools: Investors and corporate occupiers are increasingly using sale-leasebacks to unlock capital, especially in sectors where considerable capital is tied up in operating assets.·      Capital market resilience: Despite macroeconomic headwinds, net lease is attracting institutional capital, with growing interest from large institutions and wealth management channels.·      Risk-adjusted returns and geographic nuance: Cap rates and valuations vary significantly by location and tenant credit quality, underscoring the importance of underwriting both real estate fundamentals and corporate financial health.

·Industrial Outdoor Storage (IOS), a twist on a classic property type, is attracting institutional capital.  With sub-3% vacancy and strong rent growth, Industrial Outdoor Storage (IOS) is outperforming traditional industrial assets.·     Zoning and entitlement hurdles limit new IOS development, boosting demand for existing sites.·     Major investors are amassing IOS portfolios, following the path of self-storage and single-family rental.·     IOS supports logistics, construction and utilities with strategic infill locations and flexible outdoor space.·     Electrification and evolving logistics technology are reshaping IOS.

Nareit’s Steven Wechsler explains the advantages of investing in real estate through REITs. The conversation touches on the evolution of REIT sectors, the impact of interest rate movement, liquidity and tax efficiencies and the wide range of investment options available.Key takeaways: ·      Organized to Provide Structural Discipline and Tax Efficiency: REITs must distribute at least 90% of taxable income annually and maintain strict asset and income thresholds, creating a disciplined framework that supports consistent investor returns. ·      Public REITs Are Conservatively Managed: With average leverage around 30%, public REITs are significantly less leveraged than private real estate vehicles, reducing financial risk and enhancing long-term stability. ·      Global Options: REITs are publicly traded in major markets around the world. ·      Positioned for Opportunistic Acquisitions: REITs with strong balance sheets and access to capital are well-positioned to acquire assets or portfolios when pricing becomes accretive. ·      Provide Access to Emerging Asset Classes: The REIT structure includes data centers, cell towers and healthcare facilities, aligning with broader economic and technological changes.

Mortenson’s Maja Rosenquist and CBRE’s Gordon Dolven examine one of real estate’s most dynamic sectors. They discuss how AI’s growth has accelerated data center development, how site-selection strategies are evolving and the challenges posed by power constraints.Key takeaways on data center trends:·     Data center site selection is increasingly dictated by access to scalable power, increasing  development in markets with robust energy infrastructure.·     AI-driven demand is accelerating the need for hyperscale campuses, with some sites spanning thousands of acres and requiring gigawatt-level capacity.·     Lease structures are based on power usage rather than square footage, with rental rates rebounding over 50% since 2021 due to limited availability.·     Long-term capital is flowing into the sector, with infrastructure funds driving a shift in investment strategies.·     Labor and construction cost pressures are prompting innovations like prefabrication to meet the demands of billion-dollar builds.

Real estate titan Stephen M. Ross shares his bold vision for commercial real estate and West Palm Beach. Ross sees the rising Florida market as a hub for innovation, business activity and entertainment, highlighting strategic investments in healthcare, education and cultural amenities, Ross looks back on an incredible career as a developer and entrepreneur.Key Takeaways: ·     West Palm Beach Is Emerging as a Strategic Business Hub: With major investments in infrastructure, education and healthcare, the city is evolving from a back-office market into a front-line destination for corporate headquarters and innovation.·     Walkability and Waterfront Access Are Driving Tenant Appeal: The city's urban design, combined with its coastal location, offers a lifestyle advantage that's increasingly important for attracting and retaining top talent.·     Class A Office Space Is Thriving Despite National Trends: Premium developments in West Palm Beach are commanding Florida's highest office rents, signaling strong demand from financial and tech firms seeking quality and location.·     Inclusive Growth Is Key to Long-Term Value: Investments in workforce housing, K–12 education and cultural amenities are creating a well-rounded ecosystem that supports both occupiers and employees.·     Palm Beach County Is Competing with Top Growth Markets: With its favorable business climate, lifestyle advantages and expanding infrastructure, the region is positioning itself alongside cities like Austin, Nashville and Dallas as a top choice for corporate expansion.

Key Takeaways on the Real Estate Outlook ·     CBRE foresees U.S. commercial real estate investment activity increasing by 10% in 2025, despite macroeconomic uncertainty.·     CBRE believes the office market is passed its trough and leasing activity should continue to rebound.·     Industrial & logistics leasing activity will likely be on par with last year. Occupiers want modern facilities that are close to consumers.·     Availability of retail space will remain relatively tight due to limited new construction over the past decade. Retailers prefer space in high-traffic, open-air centers in growing markets.·     Rents have generally bottomed out in the multifamily market. The Midwest and Pacific Northwest are poised to lead national rent growth.·     Data Centers and the credit markets represent opportunities for nimble investors.

Entrepreneurs Sam Fox and Brian Frakes offer insights on their hospitality-driven approach to real estate development in Phoenix and how curating experiences and operating assets themselves are driving value.Key Takeaways: ·     Hospitality-led development is reshaping urban real estate, with restaurants and hotels serving as anchors that drive traffic, elevate brand identity and boost asset value. ·     Phoenix is emerging as a high-growth, diversified market, supported by strong demographics, pro-business policies and expanding sectors like semiconductors and healthcare. ·     Controlling the operations of hospitality assets enhances consistency and guest experiences, creating a competitive edge and long-term brand loyalty. ·     Investment strategies are evolving, with developers leveraging a mix of institutional equity, local partnerships and vertically integrated operations to deliver complex, high-value projects. ·     Experience is the new differentiator in retail and hospitality, as consumers increasingly prioritize service, ambiance and authenticity over convenience.

In the fourth episode of our European tour, HB Reavis' Steve Skinner and CBRE’s Alastair Perks and Simon Brown explore how asset renewal, sustainability priorities and operational excellence are transforming real estate development across Europe.

Recorded in London, this discussion with Raimondo Amabile, Co-CEO  of PGIM Real Estate, focuses on RealAssetX—the company's innovation lab that's leveraging AI to improve building operations and asset performance.Key Takeaways: · PGIM Real Estate’s RealAssetX lab is focused on transforming real estate investing through AI, sustainability and operational efficiency, signaling a shift from traditional asset management to tech-enabled value creation. · Investors are reallocating capital to Europe and Asia, reflecting a broader trend toward geographic diversification and shifting regional macroeconomic confidence. · Applications of AI in building systems, such as HVAC optimization, are delivering significant energy savings, demonstrating the potential for improved net operating income (NOI) and sustainability. · New AI tools are being developed to estimate embodied carbon at scale, positioning sustainability as a core factor in asset valuation and investment strategy. · Rental housing, logistics, data infrastructure and real estate credit are key areas of investor focus, while office assets require a highly selective, value-add approach.

AEW's Chief Investment Officer and Head of Private Equity and Private Debt in North America, Mike Byrne and CBRE's Vice Chairman and Co-Head of US Large Loans in Debt & Structured Finance, Tom Traynor provide insights on how real estate investors today can mitigate risk and uncover opportunities by strategically deploying capital across diverse asset classes and regions.insights on deploying global capital:·     Today's market demands flexible investment strategies that can adapt quickly to geopolitical shifts, interest rate changes and capital market volatility.·     High-quality office assets in prime locations are piquing investor interest, offering potential upside while demand for class B/C assets remains muted.·     Debt capital availability is improving, with both traditional capital sources and alternative lenders actively competing to finance deals.·     Investors are increasingly targeting high-growth submarkets, prioritizing local demand drivers over broad asset class preferences.·     Technology and AI are influencing investment decisions, with growing potential to enhance underwriting and portfolio strategy.