Welcome to 2025, where the net lease real estate market is shaking off a two-year hangover of rate hikes and recession fears and steadying into a cautiously upbeat groove. After riding a wave of uncertainty, the industry is showing early signs of stabilization. Capital markets are firming up, interest rates are settling down, and CRE lenders are getting back in the game.
Net lease investment volume got a serious shot of adrenaline in late 2024, largely thanks to essential retail. Cap rates, which had been climbing like a roller coaster for over two years, are now leveling out, although still higher than their pre-pandemic lows.
Tenant strategy is what’s powering demand, not just broad economic trends. Leading retailers are embracing omnichannel delivery, foodservice, and experiential concepts, while strategically downsizing and building resilience in the face of a recession.
In terms of hotspots, investors’ attention is heating up around auto service and car washes, food-focused c-stores, rural dollar stores, urgent care clinics, and high-energy experiential retail concepts.
Macroeconomic Mood
Clouds Lifting, But Bring an Umbrella
The U.S. economy isn’t exactly roaring into 2025, but it’s cruising at a manageable pace. GDP growth is slowing down (Blackrock lowered it’s 2025 U.S. GDP growth expectation to 0%). But here’s the twist–CRE sentiment is rising even as the economy cools.
A whopping 88% of global real estate executives, surveyed by Deloitte, expect revenue growth in 2025, a complete u-turn from the doom-and-gloom vibes of 2023, when most were bracing for more losses. According to the Matthews™ 2025 Investor Survey, investors are planning to increase their investments starting in Q3 2025.
So, what’s fueling optimism?
• Interest Rates: The Fed tapped the brakes in late 2024, and it’s giving CRE a breather.
• Inflation: Still sticky, but expected to drift closer to target by year-end.
• Psychology Shift: From “wait and see” to “let’s do deals”, though cautiously.
CRE performance is starting to decline from GDP trends. It’s no longer just about broad economic health—it’s about picking the right spots. These are the periods that determine the winners and losers in the investment market.
Cap Rates
The Climb Might Be Over
Cap rates spent more than two years hiking uphill, and now they’re catching their breath. After peaking in late 2024, the first quarter of 2025 brought signs of a plateau. Here’s how it breaks down:
• Office: ~7.9%
• Retail:~6.6%
• Industrial: ~6.3%
The retail sector saw the biggest cap rate jump last year–up 73 bps–but the increases are finally tapering off. Even industrial, the market darling, isn’t immune, but its fundamentals are strong enough to keep things stable.
What’s holding back a major rebound in transactions? Financing. Borrowing costs are elevated. The bid-ask spread is narrowing, but not gone. And there’s a backlog of inventory waiting for the right buyer–or the right rate cut.
While the Fed started trimming in late 2024, rates are still around 6% for NNN financing, double what they were just a few years ago.
That’s created cautious optimism mixed with frustration. Everyone’s watching the Fed, wondering: More cuts or more waiting?
Who’s buying right now?
• Private Investors: Dominating, with an 8% quarterly gain in capital deployment. The all-cash buyers are the MVPs right now, with less dependence on debt they are in a better position to pounce on good deals.
• REITs: Came roaring back in Q4 2024 (+180% year-over-year)
• Institutional: Still shy, especially on big portfolios. The liquidity spigot hasn’t exactly returned to the market.
• Cross-Border Capital: Quietly booming international buyers doubled their market share to over 11% in 2024.
• 1031 Exchanges: Used to be a net lease staple. Now? Many HNW investors are sitting out. Why? It’s hard to make the math work when you’re trading into high-rate debt. The cash is there but it’s choosy and deals are getting done, but more selectively. Everyone’s recalibrating expectations.
Sector Spotlights: The Hits, the Misses, and the Future
Industrial and Logisitics: Still the Star, Just Less Flashy
Warehouses are cooling off from the red-hot frenzy of the past few years. Net absorption is positive, vacancy rates are rising, and rent growth is slowing but remains positive.
• Small Bay Spaces (<100K): Tight and in demand
• Big-Box (>250K): Facing vacancy pressure
• Flight-to-Quality: Modern buildings with AIreadiness and automation-friendly designs are coming out on top
Industrial remains the top target for NNN investors, but the game has shifted to selectivity. It’s not about any warehouse, it’s about the right size, tenant, and market.
Shifting global supply chains because of recent tariff announcements further complicate the outlook. While the outcome of the trade disputes remains uncertain, companies have already initiated efforts to shift production to other parts of Asia, nearshore operations to Latin America, or increase investment in U.S.-based manufacturing.
Apple was the first to announce plans to bring all iPhone production to India by the end of 2026, a major shift away from Chinese manufacturing. As a prominent player, this move is expected to set a precedent, likely resulting in an increase in shipments from Mumbai to the U.S. as more companies follow suit.
Importantly, this shift would change global supply chains, moving the landing of goods from West Coast ports to East Coast ports.
Meanwhile, IBM announced an expansion to its U.S. production pipeline, a step that dramatically increases the outlook for industrial and warehouse spaces near its existing hubs.
Auto Service and Car Washes
CRE’s Cool Kids
Imagine a sector with high cash flow, essential services, and private equity interest. Welcome to auto services and car washes, the rockstars of the net lease world.
What’s driving the shift?
• Durable Demand: Cars get dirty and need fixing–recession or not.
• Strong Unit Economies: Car washes can pull in profit margins north of 40%, especially with monthly subscription models.
• Sale-Leaseback Galore: Operators are in growth mode, turning to sale-leasebacks as a preferred capital-raising strategy—driving a surge of NNN opportunities in the market.
Car washes are still going strong in 2025, with the market forecast looking at a jump from $33.46 billion to $35.39 billion, according to The Business Research Company. The 5.7% expected expansion is well ahead of Goldman Sachs forecast for the economy as a whole, highlighting the strength of the car wash sector this year.
Monthly subscriptions are a solid move for places like Mister Car Wash and Tommy’s Express, bringing in reliable income. Plus, paying by phone is most common in today’s market. These popular chains are set to open more locations to meet demand.
But wait there’s drama…
Zips Car Washes filed for bankruptcy in early 2025, reminding everyone that too much growth, too fast (plus expensive leases), can spell trouble.
Also in play is the gradual phase-out of bonus depreciation benefits. Investors used to gobble up car washes to turbocharge tax write-offs. But with the deduction rate dropping (from 100% to 40% by 2025), that frenzy has cooled. The new administration’s One, Big, Beautiful Bill outlines a return to full bonus depreciation, an amendment that if, passed, would ignite the market.
On the auto services side, the market is shifting as high-tech cars roll out, specifically the electric vehicles (EVs) sector, which reported a 10% increase in sales in Q1 2025. Big players like NAPA and Jiffy Lube are focused on training teams for this new era of vehicles. The U.S. auto service market is estimated at $199.38 billion in 2025 and is expected to grow, according to Mordor Intelligence. An increase in service centers specializing in advanced technologies and EVs is likely in the near future.
Still, savvy buyers are doing their due diligence, this sector offers serious upside, just avoid overleveraged operators in hyper-competitive markets.
QSR: Food Is The New Fuel
The Double-Drive Thru Arms Race
Quick service restaurants (QSRs) have gone all-in on drivethrus, and it’s paying off. Everyone from Taco Bell to Wendy’s is redesigning stores around speed, efficiency, and automation. Even Chick-fil-A has employees taking your order car-side with iPads (AKA line-busting). Why? Because in the QSR business seconds matter.
QSRs are now so efficient–and traffic-driving–they’re playing the role of anchor tenants in strip centers. If a property has a modern, high-throughput QSR, it’s considered gold.
QSRs are intensely focused on drive-thru efficiency in 2025, recognizing it as a primary sales channel where speed directly impacts revenue. Major players like McDonald’s and Wendy’s are implementing double drive-thrus, while AI voice ordering is being tested at locations such as White Castle to further streamline order taking. Digital menu boards are now standard, and mobile pre-ordering is increasingly popular with chains like Starbucks, offering customers ultimate convenience.
It’s not just the old-school burger joints seeing action, a new wave of QSR concepts is growing fast and grabbing serious market share. Cava and Sweetgreen are leading the charge with build-your-own bowls packed with fresh, healthy ingredients, designed for the lunch rush crowd that wants fast and clean. Salad and Go is scaling quickly by keeping things simple, drive-thru only, limited menu, and low prices. On the drinks side, Swig is blowing up thanks to its “dirty soda” craze, with custom sodas, energy drinks, and sweet treats fueling a cult-like following (especially among Gen Z). These brands are lean, efficient, and built for today’s on-the-go consumers and they’re proving there’s a big appetite for more than just burgers and fries.
Beyond speed, QSRs are also getting smarter about their menus and how they reach customers in 2025. Plus, loyalty programs and mobile apps aren’t just for ordering anymore, they’re a big way to keep customers coming back for more deals and personalized offers. Case in point: McDonald’s is generating buzz with rumors of the long-awaited return of its cult-favorite Snack Wrap, which hasn’t been on the menu in over a decade. Even without an official announcement, fans are already fired up, proving just how powerful nostalgia and digital word-of-mouth can be in today’s QSR game. It’s all about making it easy and tempting to choose them over the competition.
Convience Stores
Road Trip Destinations
Convenience stores are essential, high-frequency destinations offering gasoline and everyday items, with a proven track record of resilience across economic cycles. Many are backed by strong corporate guarantors like 7-Eleven and Circle K, strategically located on high-traffic corners with intrinsic real estate value. Investors may also benefit from favorable tax treatment, including accelerated depreciation and potential bonus depreciation.
Modern c-stores are transforming into road trip destinations, with operators like Buc-ee’s, Sheetz, and Wawa drawing travelers through clean facilities, fresh food, and branded merchandise. Bigger footprints help drive greater traffic and revenue, while brands like 7-Eleven, Casey’s, and Wawa are evolving with QSR concepts, curated food options, and delivery services to align with changing consumer demands.
C-stores remain a strong net lease investment, offering stable, passive income and consistent returns along with favorable tax strategies that help investors maximize after-tax dollars.
-Nick Hahn, Associate Vice President
Gas Station Stops To Gormet Bites
Remember when convenience stores were just about gas and a Diet Coke? Not anymore.
• Foodservice now generates almost 40% of instore profit, positioning it as a key performance driver for c-stores (Source: National Association of Convenience Stores).
•Prepared food sales jumped 11% in 2024, underscoring the growing demand for fresh, made-to-order offerings and their impact on revenue growth (Source: National Association of Convenience Stores).
Chains like Wawa, Sheetz, and QuikTrip are broadening their made-to-order food, gourmet coffee, and even seating areas.
Super-regionals like Buc-ee’s and Wawa are expanding into new states, building larger, foodforward locations, and cultivating loyal fanbases. Major players are elevating their food far beyond typical gas station fare, drawing customers specifically for their diverse, made-to-order menus. They’re spending over $7.5 million per store, and it’s not for new diesel pumps. It’s for kitchens.
Net lease investors love this shift. These new format c-stores offer longer leases, operate in recessionproof categories, and generate serious foot traffic. Just remember: not all c-stores are created equal. Food-forward models are the winners. Older, fuel-reliant locations? Those may be future redevelopment sites.
And it’s clear why. Gas stations are no longer just a place to fill up—they’re turning into unexpectedly popular hangout spots. Picking up a quality bite or a great cup of coffee while there has become completely normal, fueling repeat visits. This shift marks a major change in how consumers view roadside stops.
To keep up and attract more customers, gas stations are also getting tech-savvy with tap-topay and loyalty programs. EV charging stations are becoming popular at major chains. Gas stations are transforming into all-in-one roadside stops, using EV charging wait times to drive in-store sales and broaden their appeal to all travelers.
Casual Dining
Making a Comeback
Casual dining has glowed up. While dine-in traffic isn’t what it used to be, the segment is thriving. With Darden’s power play in motion, the casual dining sector is evolving. Restaurants that master both offpremises convenience and on-premises experience are winning the suburban center game.
Key Highlights for 2025:
• Nearly 75% of all traffic now comes from offpremises orders (Source: National Restaurant Association).
• Consumers, especially millennials and Gen Z, increasingly crave fast and seamless pickup or delivery options, influencing how casual dining stores design their food and service models.
•There is still a strong demand for good oldfashioned dine-in.
Suburban strip centers are becoming a sweet spot. Why? They offer easy parking, high visibility, and room for dedicated pickup zones, drive-thrus, and dual-kitchen layouts.
Total foodservice sales are projected to reach $1.5 trillion in 2025, reflecting a 4.1% increase over the previous year, driven by steady growth across all segments. The full-service segment is expected to generate $533 billion. Texas Roadhouse reported same-store sales up 6.5% earlier this year, which is no small thing. Off-premises dining is still a big chunk so, things like curbside pickup, delivery menus, and ghost kitchens aren’t going anywhere.
Loyalty programs are paying off, with brands like Chili’s and Red Robin seeing more frequent visits and higher spend from members. Average checks are up 6%, helped along with rewards, combos, and those upgraded drink menus. Alcohol is a big driver for happy hours and bar scenes are bringing in a solid crowd. And menus? Definitely getting more flexible. Diners are craving variety and value—whether it’s limited-time items, customizable combos, or shareable apps, the spots that keep things fresh and fun are winning right now.
Grocery and Dollar Stores
The Steady-Eddy All-Stars
Necessity retail is undefeated. Grocery-anchored centers hit record occupancy levels in 2024, with national vacancy under 3.5%. Why?
• Food’s not optional.
• In-person grocery shopping is still prefreerd.
• Discount groery stores like Aldi and Grocery Outlet are booming.
Investors love the stickiness of these centers: long leases, steady traffic, and dependable cash flow. Premium pricing is justified–especially with anchors like Publix, Trader Joe’s, or Whole Foods (which is now testing out small-format urban concepts). Chains like Publix and Walmart are buying up the centers they anchor, which could shift leasing dynamics and deal flow in the years ahead. Grocery stores are still going strong in 2025, with total U.S. sales expected to hit over $1.6 trillion, up about 3.1% from last year, according to Coresight Research.
Some of that’s from inflation, sure, but people are still showing up— just shopping a little smarter. Store brands and bulk buys are getting a lot more love, and loyalty programs are getting used. Chains like Kroger, Publix, and H-E-B are doing a solid job of keeping things fresh, affordable, and easy to navigate. Plus, stores that mix local products, solid produce, and friendly layouts are winning repeat visits.
Online grocery has cooled off from the pandemic boom, but it’s not going away, it’s still pulling in around 13% of total grocery sales. Grab-and-go meals, ready-to-eat options, and private label products are on the rise, too. With more people cooking at home again, either to save cash or eat a little better, grocers are helping with recipe kits, meal deals, and displays that make sense. Bottom line: if a grocery store makes life a little easier (and cheaper), it’s getting repeat business.
Dollar Stores
The King of Rural Retail
Dollar General and Dollar Tree are still on a tear, especially in small towns and rural markets where they’re stepping in to fill the void left by closed grocers and drugstores.
• 39,000+ U.S. locations and counting
• Plans for throusands of remodels and new builds
• Expanding grocery offerings to become essential providers, not just bargain stops
Dollar stores are now considered “critical infrastructure” in retail deserts. For NNN investors, they offer:
• Investment-grade credit (Dollar General: BBB)
• Smaller Building Footprints
• Strong performance in underserved areas
The twist?
Family Dollar’s retrenchment means more real estate up for grabs–and a clearer runway for Dollar General to dominate.
Dollar stores are absolutely thriving in 2025, especially in small towns and rural areas. Plans for even more chains like Dollar General and Dollar Tree are not just your go-to for cheap snacks, they’re becoming essential spots for everyday groceries and household items. Dollar General is leading the way, with plans for remodels and new builds, and even ramping up its grocery offerings to keep customers coming back for more than just bargains. In fact, many of these stores are now considered critical in areas that are otherwise retail deserts.
What makes them even more attractive for investors is their smaller building footprints, making them easy to place in underserved areas, and their solid investment-grade credit. Plus, with Family Dollar scaling back, there’s a clearer path for Dollar General to expand and dominate.
Health, Wellness, and Experience
Urgent Care: Retail’s Healthiest Tenant
Urgent care centers are the ultimate net lease trifecta.
• Recession-resillient
• E-commerence-proof
• Traffic-driving
These operators love strip centers and pad sites. Why? Visibility, access, and proximity to where people shop and live.
They’re also the go-to solution for backfilling vacant drugstores (looking at you, Walgreens).
In 2025, urgent care centers are really taking off, with the U.S. market for urgent care expected to hit over $36 billion by the end of the year, according to Grandview Research. These places are recession-proof, immune to e-commerce, and they bring in plenty of foot traffic, making them a top choice for retail spaces. Big names like CityMD, MedExpress, and Carbon Health are expanding quickly—MedExpress continues to grow its footprint across the U.S., and Carbon Health is targeting nationwide expansion with a goal of reaching 1,500 clinics by 2025. They’re mostly setting up shops in grocery-anchored centers, where people already go for everyday shopping. With the ability to offer quick care and extended hours, urgent care centers are becoming a must-have, filling spaces left by other businesses that didn’t make the cut.
Since about 85% of Americans live within a 10-minute drive of an urgent care center, these spots are super convenient for busy folks who need a fast, affordable healthcare option. As consumers keep looking for convenience, urgent care is quickly becoming one of the biggest growth areas in retail real estate.
The urgent care sector has seen rapid expansion, fueled by private equity backing and aggressive growth from regional and national operators. These clinics offer investors access to affordable medical real estate under long-term leases with sizable tenants though, as with all net lease assets, understanding the operator is key to assessing long-term stability and risk.
-Michael Moreno Senior Vice President & Senior Director
Botique Fitness
A Comback Story
After a pandemic wipeout, boutique fitness is back—Pilates, HIIT, Spin, Yoga—you name it, consumers want it in their neighborhood. Why?
• Shorter, targeted workouts
• A sense of community
• The convience near home of their favorite coffee shop
Franchise chains like OrangeTheory, Club Pilates, and F45 are taking small strip centers bays and turning them into daily-traffic machines.
Boutique fitness is thriving in 2025, with consumers flocking to gyms that offer short, targeted workouts. The demand for these types of fitness experiences continues to rise, driven by a need for convenience, community, and efficiency. In fact, the global boutique fitness market in the U.S. is expected to reach $36.98 billion in 2025, according to Research and Markets. People love having fitness options right in their neighborhoods, often near places they already visit like coffee shops or shopping centers, making it easier to fit in a workout.
OrangeTheory has grown to more than 1,400 locations globally and continues to expand. These gyms are attracting loyal customers with flexible membership options, high-energy classes, and a strong sense of community that keeps people coming back. The pandemic was a turning point after months of isolation, people realized that working out isn’t just about fitness, it’s also a social experience. That shift is still fueling demand today. As more people look for quick, effective workouts that fit their busy schedules, boutique fitness studios are becoming an increasingly reliable tenant for retail spaces in 2025.
Experimental Retail
From Pickleball to Ping Pong
The “experience economy” is in full swing. Retail isn’t just about shopping—it’s about doing something.
Top formats:
• Entertainment: Topgolf, Bowlero, Dave & Buster’s
• Competitive Socializing: Axe throwing, ping pong lounges, pickleball clubs
• Immersive Retail: AR-enhanced showrooms
These concepts drive traffic, soak up large vacancies, and create buzz. For landlords struggling with former big-box space or dead anchors, these tenants can be game changers.
Experiential retail is on the rise in 2025, with shoppers craving more than just a traditional shopping trip. Axe throwing, ping pong lounges, and pickleball clubs are making their mark as new social hotspots. As part of this trend, global experiential retail is projected to grow by a CAGR of 14.02%, according to UnivDatos, as brands and landlords realize the power of creating interactive, fun environments.
These types of concepts are also helping to revitalize struggling retail spaces. For landlords with large vacant areas or former big-box stores, experiential retailers can be game-changers by filling those gaps and driving consistent traffic. And it’s not just new concepts driving the shift— traditional retailers are jumping in too. Nike now offers in-store customization stations, Lululemon hosts workout classes, Dick’s Sporting Goods has rolled out its massive “House of Sport” stores complete with rock walls and turf fields, and Sephora is drawing crowds with hands-on makeup tutorials and beauty classes. Immersive retail experiences like AR-enhanced showrooms, in-store events, and themed pop-ups are turning stores into destinations, not just places to buy products.
Drugstores
From Cornerstone to Question Mark
Once viewed as rock-solid staples of suburban corners and high-traffic intersections, drugstores are now CRE’s most unpredictable tenants. The trio of Walgreens, CVS, and Rite Aid are all in retrenchment mode–and its reshaping retail landscapes across the county.
The Hard Reality: Widespread Closures
• Walgreens:Shuttering 1,200 locations over 3 years–25% of its entire footprint
• CVS Health: In the process of closing nearly 900 stores nationwide
• Rite Aid:Deep in Chapter 11, with over 150 stores already gone
Altogether, this could unleash over 140 million square feet of vacant retail space by year-end 2025.
What’s behind the pullback?
• Aggressive growth has led to oversaturation
• Shrinking reimbursement margins from pharmacy benefit managers (PBMs)
• Operational challenges like staffing shortages, retail crime, and burnout
• Failed diversification attempts (in-store clinics, primary care ventures)
The classic drugstore model just doesn’t carry the same weight it once did and they aren’t easy spaces to repurpose:
• Size Mismatch: 10,000-12,000 square feet is too large for many retailers
• Legacy Leases: Rents are often above market, with 15-20 years left on paper
• Layout Quirks: Drive-throughs, vault-like interiors, limited co-tenancy flexibility
• Vacancy Risk: Dark stores may continue paying rent–or stop if bankruptcy hits
That said, not all is lost. In fact, there’s a growing interest from a variety of backfill tenants:
• Discount retailers
• Urgent care clinics
• Medical spas
• QSRs
Still, backfilling success often hinges on the fundamentals of the real estate itself–not the previous tenant. If the site is high-traffic, easily accessible, and in a growing or stable trade area, then it likely has a second life waiting.
