Net Lease Market Stabilizes After Years of Volatility

Written by:

Steve Marcinuk

Date:

19 Jan 2026

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After several years of volatility marked by rapid cap rate increases and declining buyer activity, the net-lease investment market is showing clear signs of stabilization. Industry professionals, while cautious, see reasons for optimism as the sector heads toward 2026.

Dave Wirgler, Vice President at Sands Investment Group, leads the firm’s developer services platform and has spent the past decade in net-lease development and brokerage, including time at Stan Johnson Company before its acquisition by Northmark. He has observed the market’s dramatic swings and its recent shift toward equilibrium.

The Impact of Rate Hikes and Oversupply

The net lease sector’s recent instability began with the aftermath of the pandemic. In the immediate post-COVID period, demand for tenants like Starbucks surged, and developers rushed to secure sites for popular brands. “Coming out of COVID, Starbucks was one of the highest volume tenants, and almost every developer in the country was talking to Starbucks about some site somewhere,” Wirgler says. However, this led to oversupply just as the Federal Reserve began raising interest rates sharply in June 2022.

Developers who underwrote deals expecting cap rates in the 5.25%-5.5% range found the market suddenly demanding 6.25% or higher, erasing profit margins and upending deal structures. “Some tenants like Starbucks and the dollar segment shifted 100 to 150 basis points, maybe more on certain deals,” Wirgler notes. “That wiped out every spread that a developer would have in a deal, and that became very problematic.”

Oversupply became especially pronounced for specific brands. For example, the market now has about 200 new-construction Starbucks properties available, while Dutch Brothers’ inventory more than doubled from its typical 25-35 units to around 70. These numbers reflect how quickly excess inventory can accumulate when demand projections fail to keep pace with changing financial conditions.

Regional Activity and Migration Patterns

Despite these challenges, development activity has remained robust in certain regions, particularly Texas and Florida, which continue to lead the nation due to ongoing population growth. “If you look at the heat map of where most activity is nationally, Texas and Florida are one and two, and they have been for as long as I can remember,” Wirgler says.

Migration patterns have also started to benefit secondary markets. As Florida and Georgia become more expensive, people are moving to states like Arkansas, Oklahoma, and Alabama. This shift is creating new opportunities for developers and investors willing to look beyond traditional growth markets.

On the capital side, buyer pools remain concentrated in the Northeast and California, with trade buyers from these regions fueling acquisition activity in the Southeast and Texas. “Our two biggest buyer pools for new construction assets typically come from trade buyers out of the Northeast and out of California,” Wirgler explains.

Changing Buyer Behavior

During the downturn, the buyer landscape became more segmented. Institutional investors, including national REITs, stayed active, though they became more selective about the assets they pursued. “The institutional money, the big national REITs, they’ve been highly active all along,” Wirgler says. “They’ve had a lot of money to place, and it’s actually been a challenge because as much inventory as we’ve had out there, it’s not always good inventory.”

Family offices and private investors, in contrast, largely pulled back, preferring to wait rather than risk capital in uncertain conditions. “So many times I was talking to family offices or private investors saying, ‘I’m just on the sidelines right now, I get 5% elsewhere. Why tie my money up in a 5.5% cap asset when I might get a 5.5% return, but it might shift to a 6%?”

Trade buyers, investors moving out of management-intensive assets such as multifamily and industrial properties, also stepped back as sales volumes declined in their home sectors. “The trade buyer pool was very much down because multifamily wasn’t selling as much and was getting beat up as well,” Wirgler explains.

Stabilization of Cap Rates and Debt Markets

In recent months, market data points to stabilization. Wirgler tracks cap rate data monthly and has observed rates stabilizing across most asset types. “Over the past several months, cap rates have really started to stabilize. If we look at various segments; QSR, restaurants, convenience stores, automotive, many of those segments have actually compressed slightly, not a noticeable amount, where we’re all running to the bank, but even three to five basis points lower yield compared to what we went through in the back half of 2022 to 2025.”

This stabilization is occurring alongside more accessible debt markets. While interest rates have not dropped significantly, they have remained steady or improved slightly, enabling buyers to achieve positive spreads. “Debt rates have only really moved in our favor. It’s not that we’ve seen significant reductions due to Fed rate cuts, but they’ve been hovering at a fairly flat level and only improved slightly. So now there is spread, and developers are trying to put more deals together.”

Developer Strategies and Risk Aversion

Developers have responded to recent losses by becoming more risk-averse and seeking partnerships to share equity and reduce exposure. “I definitely get a sense from many developers that they’re scared of the market. They’re far more risk-averse, especially on deals that might have high dollars involved and big equity pieces,” Wirgler notes. “They’re looking for partners that could come in and help insulate them from that.”

Developers are also focusing on proven tenant concepts and established markets, steering clear of speculative projects. The largest share remains in quick-service restaurants, followed by convenience stores, reflecting a flight to quality and predictability.

Resilient Tenant Categories

Throughout the cycle, specific tenant categories have performed consistently. “Two categories, and it’s not even close, number one is fast food restaurants in America. Americans are addicted to fast food, and so is the investor community,” Wirgler says. “Behind it are convenience stores. You’ve got big names and very high credit in both segments.”

Properties with strong credit tenants, such as McDonald’s and Chick-fil-A, saw modest cap rate adjustments, while oversupplied or lower-credit concepts experienced steeper corrections. The automotive sector, with tenants such as Advanced Auto Parts, O’Reilly Auto Parts, and AutoZone, has also maintained steady demand despite concerns that electric-vehicle adoption could reduce demand for auto parts retailers.

Outlook for 2026: Inventory and Buyer Engagement

Looking ahead, increased buyer activity is the critical factor for continued recovery. “If buyer activity increases and we see products start to move, it’s going to change our market 100%,” Wirgler says. “We need to see the supply drop down and go away.”

Developer pipelines are active, but new supply is expected to enter the market at a more controlled pace than in recent years. Most properties coming to market now were underwritten in 2024 and 2025, reflecting more realistic pricing based on current market conditions. However, legacy inventory from 2023 to 2025 will compete with new, appropriately priced products in 2026 and beyond, pressuring sellers to adjust expectations.

Private Capital Returns

There are early signs that private investors are reentering the market. “Our clicks on deals, emails, and questions are significantly higher than they were,” Wirgler reports. “We have been slammed every day with activity, and having that kind of activity is only a good thing.”

With asset pricing more realistic, cap rates stable, and debt more available, conditions are improving for capital that has been waiting on the sidelines. “Now I think people are looking out the window and saying, ‘We have a market that has reached a more stable normal point, and I don’t see crazy fluctuations now.’”

For a sector that experienced both the frenzy of 2021-2022 and the subsequent correction, stability is a welcome change. As Wirgler puts it: “Stability is always good. People are reasonable and understanding. When one side has so much control in a transaction, somebody’s unhappy, and it just shouldn’t be that way.”

The net lease market appears poised for measured growth, with renewed confidence from developers and investors who are focusing on fundamentals and realistic assumptions. After several years of volatility, stability and balanced participation are setting the stage for a healthier market in the years ahead.