REAL ESTATE NEWS

California's single-tenant net lease market is reasserting itself as one of the country's most active in the sector, according to a new Newmark report.

In Q2 2026, investment volume jumped 42% year-over-year to $2.4 billion — nearly double the 24% national gain — even as trailing 12-month volume in the state remains down from a year ago.

"This is signaling a real re-acceleration in the second quarter rather than a one-off spike," Matt Berres, vice chairman of net lease capital markets, told GlobeSt.com.

Industrial product is driving the surge, accounting for roughly two-thirds of that volume despite trading fewer deals than retail, a sign that large single-tenant industrial assets command premium pricing, Berres said.

"Cap rates ticked up only 70 basis points to 6.6% while pricing held near $271 per square foot, suggesting investors are still willing to pay up for well-located product," he added.

"Los Angeles remains the center of gravity, capturing roughly 60% of statewide volume, though we're seeing growing interest from buyers chasing yield in secondary Northern California and Inland Empire markets."

Steady But Cautious Activity

California's single-tenant net lease market in Q2 2026 showed steady but cautious activity, with trends broadly consistent across research from CBRE, Marcus & Millichap and Colliers. All of which reported continued cap-rate expansion driven by elevated debt costs and tighter underwriting.

Across all three research firms, Q2 2026 was characterized as a period of recalibration, where pricing realism from sellers and disciplined underwriting from buyers gradually narrowed bid-ask spreads and supported modest improvement in deal flow.

According to CBRE's Q2 2026 Net Lease MarketView, cap rates for California STNL retail assets rose roughly 20 to 35 basis points from Q1 as investors prioritized long lease terms and corporate credit, while franchisee-backed deals faced wider pricing spreads and longer marketing periods.

Marcus & Millichap's Q2 2026 Net Lease Report noted that transaction velocity improved slightly from early-year lows but remained well below pre-2022 levels, with most closings concentrated in essential-retail categories such as QSR, auto service, pharmacies and dollar stores, where tenant sales performance and operational resilience supported buyer confidence.

A Bifurcation In Pricing

Colliers' Q2 2026 Single-Tenant Capital Markets Update highlighted a pronounced bifurcation in pricing, with coastal infill retail maintaining premium valuations due to high replacement costs and restrictive zoning, even as secondary-market assets required more aggressive pricing adjustments to attract offers.

Industrial and logistics STNL assets saw softer demand, a trend cited by both CBRE and Colliers, as California's regulatory environment—including AB 98's warehouse restrictions—tempered investor appetite and limited rent-growth visibility.

Office and bank-branch assets remained the most challenged segment, with Marcus & Millichap reporting prolonged marketing timelines and increased seller concessions as buyers continued to discount long-term occupancy risk.

Private buyers and 1031-exchange investors dominated the active buyer pool, while institutional capital remained selective, focusing primarily on mission-critical industrial facilities.

Berres said that net lease entered 2026 with stronger momentum nationally and the second quarter reinforces that trajectory, with volume up 24% year-over-year, reaching its highest second-quarter level since 2022.

Investors are still navigating elevated rates and remain selective on pricing, but the return of transaction activity suggests the market is finding its footing and should create a more active environment for buyers and sellers through year-end, he projected.

Source: GlobeSt/ALM