Single-Tenant Net Lease Cap Rates Stabilize, Boulder Group Reports

(Illustration courtesy of The Boulder Group)

Single-tenant net lease cap rates saw little change in the second quarter in a departure from recent years, according to The Boulder Group, Wilmette, Ill.

Overall cap rates increased just one basis point to 6.79%, The Boulder Group’s second-quarter Net Lease Research Report said.  

Retail cap rates edged up one basis point to 6.57%, while office cap rates increased five basis points to 7.85%. Industrial-sector cap rates remained unchanged at 7.23% for the second consecutive quarter.

“This modest increase in cap rates illustrates a change from the more pronounced upward trajectory experienced from 2022 to 2024,” Boulder Group President Randy Blankstein said. “This suggests the market may be stabilizing after three years of consistent cap rate increases.”

Blankstein said the “plateauing” of cap rates can be best attributed to the combination of the Federal Reserve holding rates steady in 2025, investor adjustment to the current interest rate environment and market stabilization following three years of cap rate expansion.

“Transaction activity in the second quarter demonstrated a pronounced flight to credit quality, with premium tenants commanding cap rates lower than the market averages,” Boulder Group Partner Jimmy Goodman added.

The report said high-credit retailers such as 7-Eleven, Chase Bank and Wawa commanded sub-6% cap rates, while tenants with ongoing corporate challenges such as Walgreens traded at cap rates exceeding 7%. “This bifurcation reflects investors’ heightened focus on tenant financial strength amid economic uncertainty. Further proof of this concept is the quick-service restaurant sector, where corporate QSR brands continued to attract aggressive pricing, with Chick-fil-A and McDonald’s maintaining their position as the most aggressively priced assets in net lease at 4.45% and 4.38% cap rates respectively,” the report said.

John Feeney, senior vice president with The Boulder Group, noted the net lease market continues to show signs of stabilization after three years of cap rate increases, “with the second quarter marking a notable change in pricing momentum.”