The net lease asset class, we believe, has a history of strong performance and resilience through multiple cycles and a range of economic environments, a record that has continued through the challenges that have become so pronounced in recent years – the volatility, pressures on asset values and inflationary markets.
We believe there is vast and untapped opportunity in net lease for those select firms with the experience and expertise to transact. According to CBRE, the net lease market has grown over eight-fold in the past two decades, accounting for approximately 11% of all U.S. commercial real estate transactions. This market is predominantly focused on industrial, corporate, and retail assets, and may be worth well over $100 billion per year given significant unreported activity.
We are seeing an especially large and attractive opportunity set today via sale leasebacks, and build-to-suits, in addition to acquiring existing assets. We believe sale leasebacks have become increasingly attractive to companies seeking alternative sources of capital. Even well-heeled companies are preserving cash and their lines of liquidity, and sale leasebacks allow companies to convert a non-cash producing fixed asset into a cash producing one.
We are also seeing an uptick in build-to-suits as companies continue to onshore their manufacturing footprints and expand distribution capabilities in an effort to shore up their supply chain. Additionally, we see compelling opportunities to acquire assets on existing leases being sold by owners to address upcoming debt maturities or stresses in non-net lease portfolios.
While the correlation between cap rates and interest rates is weak, they do tend to move in the same direction. Net lease cap rates have become increasingly attractive in recent years, and in our view, we are currently able to acquire compelling assets at attractive cap rates. In addition to attractive cap rates, we are also seeing favorable fixed rental increases, on account of higher inflation.
As both a strategic transaction for corporations and as a strategic allocation for investors, we believe the benefits of net lease have never been more pronounced or more relevant than they are today.
Fortress is one of the largest and most active acquirers of net leased investments in the marketplace. Over Fortress’s 20+ year history, the Fortress Net Lease team has acquired over 2,900 properties and more than 82 million square feet in the industrial, retail, and office sector.