The single-tenant net lease sector was vibrant throughout 2019, as investors clamored to buy up office, retail and industrial properties. Transaction volume in 2019 was more than $80B, a roughly 35% increase over the amount in 2018, according to a new report by The Boulder Group. That momentum continued into 2020’s first months, but the onset of the COVID-19 crisis sent a shock through the market in mid-March.

“Late in the first quarter overall net lease activity was reduced and the supply of net lease properties declined late in the quarter,” according to the Wilmette, Illinois-based firm.

The supply of assets added to the market in the quarter’s final two weeks declined by more than 20% compared to the first two weeks of March. Supply was down 16% in Q1 2020 compared to the last quarter of 2019.

As the stock market began taking hits, the exchange-traded fund focused on real estate firms in the net lease sector saw a 30.8% decline in the first quarter, Boulder added. The volatility has led many institutional investors to hit pause on many planned transactions. By the end of the quarter, most of the remaining interest in the net lease sector came from private investors and 1031 exchange buyers.

“1031 investors will continue to seek stable cash flows from this asset class while sheltering their capital gain,” Boulder noted.

Many businesses are considered essential in the crisis, and are exempt from government shutdown orders, and some have even seen increased customer traffic, including pharmacies and grocery stores. Boulder expects these businesses, along with still-open convenience stores and dollar stores, especially ones hosting investment-grade tenants, will continue to draw investor interest. But overall investment volume will fall in the second quarter.

“As a result of the market’s bifurcation between essential and non-essential businesses during the COVID-19 pandemic, there will be limited investor interest in properties that fall in the non-essential category until there is further stability.”