Single-Tenant Net Lease Cap Rates Stable

The second quarter brought very little movement in single-tenant net lease property cap rates overall, reported Calkain, Herndon. Va.

Some STNL sectors including dollar stores and auto parts stores saw a small compression in cap rates while pharmacies experienced slight cap rate increases–just enough to bring the net change to near zero, Calkain said. Big-box store cap rates held steady quarter-over-quarter.

Auto parts stores such as Advance Auto Parts and Auto Zone saw a 37 basis point cap rate compression. “From quarter to quarter, there was a larger number of sales than usual originating from California,” the Calkain Second-Quarter Cap Rate Report said. “Properties in California typically have lower cap rates than the rest of the country.”

For dollar stores including Dollar General and Family Dollar, average cap rates fell slightly. When looking only at sales that had at least ten years remaining on the property’s lease, Dollar General experienced a near zero change while Family Dollar’s change was significant, moving up 38 basis points. “This movement was driven by fewer Family Dollars trading in premium locations,” the report said.

The average pharmacy sector cap rate rose 46 basis points. “When looking at all CVS and Walgreens, there appears to be very little movement,” the report said. “Together they represent over 80 percent of the pharmacy sector sales captured in this report.”

But the third-largest pharmacy, Rite Aid, caused average pharmacy cap rates to rise. Rite Aid’s cap rate “skyrocketed” 240 basis points between the first quarter and the second, Calkain said. “The quick growth in cap rate was caused by a drop in the number of lease years remaining. No sales in the second quarter had over 10 years remaining and the average number of years left fell from 13.5 to 5.5,” the report said.

Big-box sector cap rates held very stable. “An increasing percentage of properties sold were in premium locations demanding a lower cap rate,” Calkain said. “At the same time, a higher percentage of sales were from double-net properties, which typically sell at higher cap rates. These offsetting factors combined with an increase in the number of years remaining (on property leases) kept cap rates very stable.”