Single-Tenant Net Lease Cap Rates Rise for Ninth Straight Quarter, The Boulder Group Finds

(Illustration courtesy of The Boulder Group)

Single-tenant net lease cap rates increased for the ninth consecutive quarter within all three sectors in the first quarter, per The Boulder Group, Wilmette, Ill.

Single-tenant cap rates increased to 6.47% (up 5 basis points) for retail, 7.67% (up 7 basis points) for office and 7.10% (up 8 basis points) for industrial properties, the firm’s Second Quarter Net Lease Research Report said.

“Elevated interest rates and limited 1031 exchange and institutional buyer activity is the cause of the consistent upward trend in cap rates,” Boulder Group President Randy Blankstein said. “The lack of transactions when compared to recent years is causing property supply to rise without a path to clear the market inventory.”

Boulder Group Partner Jimmy Goodman noted supply in the single-tenant sector increased by more than 8% compared to the prior quarter. “This is the highest amount number of properties on the market since the fourth quarter of 2021,” he added.

Most investors believe that the current market strongly favors buyers over sellers in terms of compromising on asset pricing–especially true of assets that are more highly commoditized like dollar stores–the report said.

Boulder expects the pace of cap rate expansion should slow in the second half of 2024. “However, cap rates are still expected to rise given the increase in the supply of net lease properties,” the report said. “It remains to be seen if the market will receive much-needed interest rate relief via a rate cut from the Federal Reserve. Investors will continue to carefully monitor the capital markets and its potential impact on net lease valuations. As the market remains inconsistent, investors will remain selective, focusing on properties with strong tenants and underlying real estate fundamentals at pricing that is advantageous.”