Why Net Lease Continues to Draw Investors
Net lease performance amid rising interest rates has W. P. Carey “bullish”
The net lease retail sector continues to outperform despite changing interest rates, with a growing number of retailers expanding their footprints or developing new properties against a “compelling” cap rate environment.
That’s according to Michael Fitzgerald, executive director, head of US Retail, W. P. Carey, who told GlobeSt at ICSC Las Vegas that many retailers are “aggressively expanding” in their markets.
“We’ve seen a lot of activity in sale-leaseback and we are bullish on net lease retail,” Fitzgerald says. “The retail sector is enormous – and we’re chasing deals.”
Fitzgerald also discusses:
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The state of retail fundamentals
- How investors are responding to changing interest rates and economic uncertainty
- What makes W. P. Carey stand out from its competitors in terms of investment opportunities
Watch now
An interview with Michael Fitzgerald, W. P. Carey, and Holly Amaya, GlobeSt.com.
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Net Lease Retail is at an Inflection Point
As retail investors and operators convene in Las Vegas for ICSC, the conversation around net lease retail feels both familiar and different. Familiar, because the net lease retail market continues to demonstrate resilience and stability. Different, because the drivers shaping today’s retail real estate decisions are evolving—creating new opportunities for operators and investors alike. From rising sale-leaseback activity tied to M&A, to more intentional approaches around store size and format, today’s net lease retail market is being shaped by a combination of strategic growth decisions, changing consumer behavior and a more balanced transactional environment. These are several of the key trends taking center stage ahead of the conference. Sale-leasebacks Follow Strategic M&A Activity One of the most consistent drivers of sale-leaseback volume in retail today is merger and acquisition activity. Whether it involves private equity-backed platforms consolidating regional brands or strategic buyers acquiring complementary concepts, transactions often prompt companies to reassess their balance sheets—and real estate frequently emerges as one of the most efficient sources of capital. In many cases, companies come out of acquisitions with real estate portfolios that were not central to the strategic rationale of the deal. Sale-leasebacks allow operators to unlock that capital, streamline their asset base and redeploy proceeds into higher-return priorities such as new stores, technology investments or debt reduction. What stands out in the current environment is that this activity is not limited to highly leveraged situations. Healthy, growing retailers are increasingly using sale-leasebacks proactively as part of longer-term capital planning, particularly when M&A introduces scale or accelerates geographic expansion. Sale-leasebacks continue to provide a compelling alternative to traditional financing for businesses seeking flexibility and predictability. The Evolution Toward Smaller, More Flexible Footprints Another defining trend across retail is the ongoing evolution of physical store footprints. While large-format locations remain relevant in certain categories, many retailers are gravitating toward smaller, more efficient concepts that align with omnichannel strategies and localized demand. These stores are often designed to serve multiple functions—acting as showrooms, service hubs, fulfillment points or a combination of the three. Flexibility has become increasingly important, both in store design and in location strategy, as retailers respond to shifting consumer behavior. From a net lease perspective, this evolution places greater emphasis on unit-level fundamentals. Smaller footprints can generate compelling cash-on-cash returns, but success depends heavily on the alignment between location, concept and the operating model. The underwriting process for net lease retail investors is therefore increasingly focused on how these formats perform across markets, how scalable they are and how they fit into a retailer’s broader growth strategy. Stabilized Cap Rates Bring Predictability Back to the Market After a period of volatility driven by rapid interest-rate movements, cap rates across the net lease retail space have begun to stabilize. While pricing discipline remains essential, the return of predictability has had a meaningful impact on transaction activity. Clearer valuation benchmarks make it easier for buyers and sellers to transact. Investors can underwrite opportunities with greater confidence, tenants can assess capital alternatives more thoughtfully and deals are less likely to stall amid uncertainty around pricing expectations. That said, credit quality, location fundamentals, lease structure and real estate criticality remain core considerations. However, in a more balanced environment, high-quality assets supported by strong operators are finding liquidity, and capital is moving more efficiently. Looking Ahead As ICSC Las Vegas approaches, there is optimism across the net lease retail landscape. While uncertainty remains part of the broader economic backdrop, the conversations in Las Vegas are expected to reflect an industry that has evolved through recent cycles and continues to find opportunity through change. For net lease retail, the current environment represents less of a reset and more of a recalibration—one that rewards sound fundamentals, flexibility and a long-term investment approach.
Net Lease Retail Demand Follows Where Retailers Are Growing
The US net lease market is experiencing a resurgence. Valuations reset throughout 2025, meaning the bid-ask spread narrowed. And in spite of economic headwinds, net lease volumes increased by 24% year-over-year for the fiscal year ending in Q3 2025, according to CBRE. For Michael Fitzgerald, managing director and head of US retail at W. P. Carey, finding the right retail investment opportunity starts with understanding some tell-tale signals. “The US net lease retail environment is driven primarily by the general health of retailers,” says Fitzgerald. “Are there a large number of retail operators that are opening new locations or investing in existing locations in a way where they need access to capital?” When the answer to that question is yes, deal flow often follows, and Fitzgerald points to specific categories where he sees the strongest deal flow and investor interest right now. Non-discretionary Categories Draw Investor Interest Fitzgerald notes that retailers that sell non-discretionary products or services are among the most interesting for investors, but tend to carry lower cap rates. “We also think about the macro trends, such as fitness,” says Fitzgerald. “It used to be something that a small percentage of the population would pay for; now it’s become a non-discretionary spend for a lot of families because general health and fitness have become a priority.” He notes that convenience stores, car washes and automotive services are among the other segments he sees generating strong deal flow, with car washes having regained interest and automotive services drawing attention across the board. Full Loan-to-Value Appeal Drives Demand For business operators or CFOs seeking efficient forms of capital, Fitzgerald explains that the net lease structure is hard to beat. “They can redeploy that capital back into their businesses at a higher return because they’re getting more loan-to-value than a mortgage,” says Fitzgerald. “That’s why we see sale-leasebacks continuing to be one of the top choices for businesses that have an ongoing need for capital.” When evaluating a net lease retail asset, Fitzgerald explains that the analysis centers on whether a location can generate enough cash flow to cover rent easily across a commitment that can run for 20 years or more. He also notes that new stores can complicate that picture since there is no operating history to draw from, which is why assets with longer track records tend to be the easiest to understand and underwrite. Net Lease Retail Holds Up Across Good Economies and Bad Despite continued headlines about retailer store closures, Fitzgerald notes that the net lease retail market is more durable than the news cycle suggests. He explains that the net lease market has proved resilient across good and bad economies, with the most difficult periods coming not from downturns but from rapid interest rate swings in either direction. “I’m optimistic about the net lease retail market. Even in times of relative instability, we continue to see consistent deal flow, as companies leverage sale-leaseback transactions to monetize real estate and fund growth,” says Fitzgerald.
A Balancing Act Between Deployment and Discipline
Net lease continues to be one of the core investment strategies employed in the global real estate market, but conditions in the US and Europe do not strictly mirror one another, explain Christopher Mertlitz, Head of European investments, and Zachary Pasanen, Co-head of North American Investments. However, across both of these regions, a common thread is emerging amid an uncertain macro environment: investors are balancing pressure to deploy capital with a more cautious approach to pricing, risk and long-term tenant viability. Download W. P. Carey’s keynote interview from the PERE Net Lease Report to learn more about the differences between the US and European net lease markets, which asset classes are garnering the most interest from investors, where deal flow is coming from and more.