With 2010 behind us and 2011 now getting under way, it's a good time to take stock of the net lease market in review and where it seems to be heading in the new year.

Last year's sales started off at a slow pace —not surprising, given that we had just exited the recession of 2009—but the net lease market began to pick up in earnest in the second half of 2010. Although we have not yet seen full-year figures for the industry, the amount of growth in investment sales during the first three quarters of 2010 as compared to the prior year is very encouraging.

According to Real Capital Analytics (which, it is important to note, bases its data on sales of properties and portfolios of $5 million and higher), there was a significant increase in sales volume for all three main single-tenant property types. Most dramatically, sales of single-tenant office properties more than doubled, from $2.52 billion in the first three quarters of 2009 to $5.13 billion in the first three quarters of 2010. Single-tenant industrial asset sales saw similar growth as well, from $1.5 billion to $2.85 billion when comparing the same time periods. Though on a smaller scale, the retail sector also logged an increase, from $520 million of single-tenant assets trading during the first three quarters of 2009 to $590 million in the same period of 2010.

As the data shows, the trough in this cycle is behind us, and 2010 in fact turned out to be a strong year for the net lease investment sales marketplace. Not only do we expect these trends to be further evidenced by the fourth quarter data when it is available, we fully anticipate the momentum to continue this year.

Why? It has become clear that investors' increasing confidence and comfort levels—with the real estate market and the slowly but surely improving general economy—is steadily gaining strength. Today, more owners are bringing properties to the market for sale, more buyers are getting off the sidelines and putting their capital to work, and more lenders are willing to provide debt again.

At Stan Johnson Company, we enjoyed our second best year in the firm's quarter-century history in terms of sales volume, closing $1.2 billion of transactions in 2010. Even more importantly, we began the new year with an incredibly strong pipeline. It's hardly the hyperactive market of 2006 and 2007, but a more normalized market experienced prior to those unusual boom years.

The net lease market in 2010 was characterized by very strong pricing and competition for the highest quality assets. After the significant rise that began in 2008, cap rates traded down during the latter part of 2010. While we expect the higher quality properties to continue to garner strong investor interest and competitive pricing, we also expect that as investors become even more comfortable with the real estate and economic environment, they will begin to moderately expand their acquisition targets in search of higher yields. This will encourage owners who have been hesitant to put their properties on the market, and the increased supply should further bolster investment sales activity.

Also worth noting, as capital began to free up in 2010, it became easier for larger deals to trade, resulting in an increasing average deal size.

While banks, arguably the most reliable debt capital source last year, continue to be very active, an important development has been the return of CMBS lending. The CMBS market, which last year was limited largely to single-borrower portfolio deals, is expected to not just increase its overall volume this year but also to begin financing more one-off transactions by the middle of 2011.

As sales volume ramps up, we expect the conduits will likely ease their underwriting criteria slightly—allowing lesser credit, say, or secondary market locations, as long as the other fundamentals of a deal are sound. With more activity and competition in the CMBS realm, life companies are likely to become more competitive with their financing as well.

Net lease properties, well recognized for providing stable, secure income, have grown even more attractive to investors following a period of general uncertainty across all investment classes. The net lease marketplace turned a significant corner during 2010, and we believe all of this sets the stage for a vibrant investment sales market in 2011.