The net lease sector is moving through a defining transition, one shaped not just by market cycles but by evolving investor sophistication and mounting evidence of net lease’s resilience in today’s challenging capital environment. As institutional investors move squarely into the sector, net lease has become “front and center, in front of investors’ minds, really, in my 20-plus years in the business,” observed Teddy Kaplan, president and CEO of net lease strategy at New Mountain Capital, which recently closed on a $640 million portfolio. “There’s no longer the need to explain it. Where does it fit within the real estate, return and or niches?” he added, highlighting a fundamental shift in investor perception and capital formation that is bringing new scale—and competition—to net lease.
Kaplan was one of the speakers in a recent CBRE podcast, along with the firm’s Will Pike. “From a capital standpoint…if you look at it from a risk-adjusted return standpoint, the net lease sector has been incredibly compelling for institutional investors, both domestically and offshore,” said Pike, who leads CBRE’s U.S. industrial and logistics capital markets operations.
Pike is projecting transaction volume increases for the remainder of 2025, estimating activity to finish “somewhere in probably the five to 12% range, by the end of the year,” supported by robust performance in industrial and retail asset types. As Pike put it, “We’re expecting a good year, but nothing I would say robust. As far as volume for the remainder of the year…majority of that volume is in the industrial and retail sector, although office trades are really picking back up from activity, we’re seeing that in what we’re doing on the Net Lease side, also across the board.”
What draws capital in this environment is not just sector resilience, but continuing outperformance. “The net lease sector has been incredibly compelling for institutional investors … both credit investors and just traditional investors,” Pike emphasized. Kaplan concurred, pointing to the underlying math: “If positioned correctly, by owning mission critical real estate on a durable business on a long-term lease basis, you can earn a mezz type of return while taking super senior risk.” Those mid-to-high-teen returns stand out as cap rates in other segments struggle under higher interest rates—a scenario that has motivated firms to recalibrate acquisition criteria.
Both leaders emphasized that industrial and manufacturing are delivering the most attractive risk-adjusted returns in the current climate.
The market’s evolution toward longer lease terms is another quiet but significant shift. “Ideally your WALT is going to be somewhere in the 36 to 48 to six to seven year wall, as opposed to such short term,” Pike explained, referencing a migration away from the short lease period targets popular at market peaks. Kaplan noted, “We turn that paradigm on its head and say we’re going to structure a 20-year fixed escalation contract in every one of our deals, and our tenants are never going to leave. We’re not going to have downside repositioning costs, et cetera. We’re just going to have a known and contractual cash flow stream that goes up over a long period of time.”
The appetite for certainty has overtaken the previous preference for flexibility, as investors see their upside increasingly tied to dependable contractual escalations rather than periodic rent resets in volatile markets.
One of the more aggressive forward-looking themes is manufacturing. Kaplan has long reiterated this “acyclical, defensive area of the economy” as a strategic opportunity, especially in secondary markets. “I’m bullish, generally speaking, on secondary markets over primaries,” said Spencer Levy, the podcast’s moderator, but Kaplan made the rationale for manufacturing clear: tenants in this category “roll up to defensive demand and inelastic, acyclical areas of the economy.”
In secondary markets, where there is less competition for assets, “cash flow will be king. Not only in secondaries, it’s king in those areas where there’s this capital market inefficiency, where there’s not enough capital chasing a space I believe is ripe for cap rate compression.” Pike advised that, “To achieve more yield in the net lease sector, it needs to be a couple of factors. One location…The other is obviously credit, which we’ve also touched on today.”
