Cap Rates For Net Lease Sector Reach New All-Time Lows

Cap rates in the single tenant net lease sector reached a new historic low

WILMETTE, Ill. (PRWEB) October 02, 2021

The Boulder Group announced the release of its 3rd Quarter Net Lease Research Report today. Cap rates in the single tenant net lease sector reached a new historic low for all three asset classes in the third quarter of 2021. Cap rates for retail, office and industrial fell to 5.80%, 6.80% and 6.70% respectively.

“Significant investor demand combined with limited supply of quality net lease assets remains the primary driver of continued cap rate compression in the sector” says Randy Blankstein, President, The Boulder Group. “Furthermore, during the third quarter, the 10 Year Treasury yield decreased to its lowest levels since the first quarter of 2021.”

As pricing within the net lease sector remains at all-time highs; owners are taking advantage and adding properties to the market. Property supply increased by approximately 9% in the third quarter, driven by an increase in retail and office properties. Property supply in the industrial sector decreased by more than 11% in the third quarter.

“The significant demand for industrial assets is causing many transactions to occur prior to a public marketing process,” adds Jimmy Goodman, Partner, The Boulder Group. “This contributed to the decline in supply of net lease industrial product.”

In the third quarter of 2021, less than 25% of the retail property supply had more than 15 years of lease term remaining which is below the historical average. High quality tenants with long term leases experienced the biggest decline in cap rates. Investment grade rated tenants including 7-Eleven, AutoZone and Fresenius experienced the greatest amount of cap rate compression for new construction properties.

“1031 exchange and private investors primarily seek assets with long term leases and creditworthy tenants,” John Feeney, Senior Vice President, The Boulder Group adds. “The limited supply of long term leased assets created competition amongst all buyer profiles resulting in the cap rate compression experienced in the third quarter.”

Transaction activity in the net lease sector is expected to remain active throughout 2021 and continue through 2022. However, the demand for this asset class will be met by supply pipeline issues. The majority of new construction properties are concentrated in dollar stores and quick service restaurants. For the past two quarters investors were carefully monitoring potential tax changes related to the American Families Plan. In mid-September the House Ways and Means Committee released its tax proposal which did not include Section 1031 exchange elimination or modification.

“Market participants will continue to monitor the situation as any legislative changes could impact the overall net lease market,” according to Blankstein.

To view the full report: https://bouldergroup.com/media/pdf/2021-Q3-Net-Lease-Research-Report.pdf

About The Boulder Group

The Boulder Group is a boutique, Chicago-based investment real estate services firm specializing in transaction and advisory services for single tenant net lease properties. Founded in 1997, the firm has closed over $6 billion of net lease property transactions. The firm provides a full range of brokerage, research, advisory, and financing services nationwide. The level of annual, single-tenant transaction volume consistently ranks the firm in the top 10 companies nationally, according to industry benchmarks determined by CoStar and Real Capital Analytics.

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