State of the Market | November 9, 2023


Insight By: Dave Gollenberg

Investment sales, leasing activity, and mortgage origination have seen significant YoY declines in Q3 2023. Investment sales within the single-tenant net lease sector have dropped for the 7th consecutive quarter, reaching $9.6 billion in Q3, as reported by Newmark. The net lease market saw a significant decrease in transaction volume and the number of transactions compared to the previous year. While investors typically favor net lease assets for their stability during uncertain economic times, factors like rising interest rates and inflation have contributed to a slowdown in investment activity, impacting these assets as well.

Total revenue decreased 9% to $2.3 billion in Q3. Valuations declined 17%, and property, facilities, and project management income remained muted relative to Q2 2022. Cushman reported a $33.9 million loss for the third quarter – citing efforts to pay down debt and refinance coupled with declines in fees. The largest publicly traded national brokerage shops reported the following losses in Q2:

JLL: Total revenue fell 2% to $5.1 billion in Q3 compared to the same time last year. Net income decreased 57% to $59.7 million.

CBRE: Net earnings decreased by 95% compared to the same period last year, reaching $5.1 million, primarily attributed to a 48% drop in investment sales and other capital markets-related earnings.

Cushman & Wakefield: Total revenue decreased 9% to $2.3 billion in Q3. Valuations declined 17%, and property, facilities, and project management income remained muted relative to Q2 2022. Cushman reported a $33.9 million loss for the third quarter – citing efforts to pay down debt and refinance coupled with declines in fees. 

Colliers: Colliers reported a 6% decline in revenue to $1.06 billion and net earnings before interest, taxes, depreciation, and amortization of $144.9 million in the quarter – compared to the $145.1 million for Q3 2022.

Newmark: Newmark’s total revenue declined 7.3% to $616.3 million, and net income fell 62.6% to $14.1 million from $37.7 million as transaction volume declined and costs for interest, acquisitions, and staff recruitment increased.

Marcus & Millichap: Marcus reported a loss of $9.2 million, compared to a profit of $21.4 million in Q3 last year. Brokerage commissions fell by more than 52% to $139.8 million.

These earnings reports are a clear indicator of the current state of the market across the greater CRE landscape. Transaction volume remains muted relative to 2022, and this is largely attributed to an elevated interest rate environment, tighter lending conditions, and market uncertainty – especially surrounding the outlook on the return to office for tenants.

During the third quarter of 2023, the single-tenant and net lease market experienced a significant decrease in both transaction volume and the number of transactions compared to the previous year. Transaction volume declined by 55.4% year over year, while the number of transactions declined by 35.0% year over year, according to Newmark. 

The rise in interest rates has continued to apply upward pressure on STNL cap rates. Per the Boulder Group’s Q3 report – the average cap rate across retail, industrial, and office cap rates increased to 6.51%. Retail saw a 10-basis point increase to 6.27%, office experienced a 14-basis point increase to 7.41%, and industrial saw the largest increase of 16 basis points at an average 6.96%.

Net lease supply in Q3 increased roughly 10%, while the buyer pool has significantly reduced from last year. This is largely due to the reduction in 1031 exchange buyers participating in the market, which are typically the cornerstone of active buyers within the net lease space and fuel deal volume in the sub-$5 million range. Data provided from our proprietary 1031 exchange desk indicates that 72% of 1031 exchange capital we’re working with is pursuing opportunities under $3M.  Many of these investors are those transitioning out of more management intensive assets such as multifamily and office seeking passive and durable income streams which net lease properties offer.

According to JLL – Q3 reports indicate that 84 property sales in Manhattan occurred at $4.92B in transaction volume. This puts the NYC market on pace for $15.3B for the year – a decrease of 25% from 2022. On the bright side, Q3 sales saw an increase of 30% from Q2 this year which may indicate that sellers are beginning to capitulate to the current market conditions. Given NYC transaction volume feeds a massive portion of the net lease 1031 buyer pool, it’s important to have a reading on these metrics.

Macroeconomic Metrics

  • Federal Funds Rate: 5.25-5.5%
  • Current Unemployment Rate: 3.9%
  • Inflation Rate: +3.7% YoY (for 12 months ended September)

Critical Dates

  • CPI Data Report: November 14th
  • Jobs Report: November 17th
  • PCE Report: November 30th
  • FOMC Meeting: December 12-13th


Over the past few months – there unfortunately hasn’t been a lot of positive news surrounding the CRE marketplace. That said, the Fed held the overnight rate steady at 5.25% – 5.5% in the last FOMC meeting which was a breath of fresh air. The Fed has made it clear that it intends to hold steady on their path to achieve their targeted 2% rate of inflation while avoiding excessive monetary tightening. The Fed has another option to increase rates in December so all economic data published in the reports above will be important factors to consider prior to the next meeting in December. Another indicator to closely monitor is the 10-year treasury which hovered around 5% in late-October and is now sitting at ~4.6% – as many CRE lenders use this as an index for rates.

Looking ahead, many economists predict that we will be in an elevated interest rate environment for at least the next 12-16 months. It will be tough to point toward when we’ll see rates come down from a 22-year high, and there is a record level of commercial loans coming to maturity by 2027 according to Trepp. It estimates $2.78 trillion of commercial loans are coming due by 2027 which includes $536.9 billion of loans in 2023 and $540.6 billion in 2024. 

Consequently, numerous properties facing maturing loans might become excessively leveraged, requiring extra equity or additional rescue capital. This will likely present more distressed opportunities to the market over the next few years.

Other areas of opportunity for investors to find yield more specifically within the net lease space will be with assets that have shorter term leases, located in secondary markets, and/or within the sale leaseback space. In today’s environment – sale leasebacks provide operators an alternative and oftentimes a more favorable financing solution relative to traditional lending sources. Given that a large portion of these deals are with private rather than investment-grade operators – the cap rates are typically more attractive. Additionally, we expect to see an uptick in sales for properties eligible for 80% bonus depreciation in Q4 before that drops to 60% in 2024.

If you have any questions on current opportunities my team is working on or would like to discuss the state of the net lease market, please don’t hesitate to reach out. See below for articles and earnings reports that elaborate on each point touched on in this newsletter.

CoStar | Cushman & Wakefield Reports Loss as Real Estate Deal Activity Slides Further

GlobeSt. | CBRE Says No Recovery until Second Half of 2024 

CoStar | Marcus & Millichap Posts Loss as ‘Prolonged Market Disruption’ Slows Property Sales, Lending

U.S. Bureau of Labor Statistics | Local Area Unemployment Statistics

Federal Reserve | Meeting Calendar

Labor Market Info | Data Release Schedule

GlobeSt. | Triple Net Lease Sees Most Listing Activity in Almost a Year

Commercial Observer | Do the Latest Staten Island Investment Sales Stats Herald a New Phase?

GlobeSt | REIT Outlook on Net Lease Remains Strong Despite Ongoing Uncertainty

The Boulder Group | Q3 Net Lease Market Report

Dave Gollenberg | Senior Investment Sales Associate | Contact: 646.809.8847 |