Cap rates in the single-tenant net lease sector have continued to increase for nine consecutive quarters across all three major property types, as reported by The Boulder Group’s 2nd Quarter Net Lease Research Report. Retail cap rates rose by five basis points to 6.47%, office cap rates increased by seven bps to 7.67%, and industrial cap rates saw an eight bps rise to 7.10%.
According to Randy Blankstein, president of The Boulder Group, this consistent upward trend in cap rates can be attributed to elevated interest rates and limited activity from both institutional buyers and those utilizing a 1031 exchange program. As a result, there is now an excess supply of properties on the market without enough demand.
Due to this surplus of properties available for purchase, most investors believe that the current market heavily favors buyers over sellers when it comes down asset pricing negotiations – especially for highly commoditized assets such as dollar stores.
John Feeney, SVP at The Boulder Group adds that with minimal competition among buyers currently present in the market , many are targeting assets located within income-tax-free states or areas with strong demographic drivers . Secondary motivations include seeking out real estate fundamentals backed up by credit tenants.
While it is expected that during the second half of2024 we will see a slowdown in pace regarding expansion of capitalization (cap) rate growth accordingtothe report , they are still projectedto continue rising due primarilytoan increasein thenumberofnetleasepropertiesavailableforpurchase .
The article “Net Lease Cap Rates Post Ninth Consecutive Quarterly Rise” was originally published on Connect CRE.
