Cap Rates for Net Lease Medical Properties Compress Significantly

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The Boulder Group cites increased investor demand as the primary reason

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An increased investor allocation for medical properties was a primary factor in cap rate compression

The Boulder Group announced the release of its Net Lease Medical Report today. In the third quarter national asking cap rates in the single tenant medical sector compressed to 5.95%, according to the 2021 Net Lease Medical Report. This represented a 55 basis point decrease when compared to the prior year.

“An increased investor allocation for medical properties was a primary factor in cap rate compression,” says Randy Blankstein, President, The Boulder Group. “Additionally, strong investor demand put downward pressure on cap rates in the sector.”

The net lease medical sector was previously priced at significant discount to the overall net lease sector since 2017. However, in the third quarter of 2021, net lease medical properties were priced at a 4 basis point premium to the overall net lease sector following a year of significant compression. Lower price point, net lease medical assets provided an opportunity to investors when compared to the net lease retail sector. In the third quarter of 2021, the net lease medical sector was priced at a 15 basis point discount to the net lease retail sector (5.80%).

“Medical related tenants continue to expand off hospital campuses and into historically retail real estate locations, implementing so called medtail strategies,” adds Jimmy Goodman, Partner, The Boulder Group. “Net lease investors that previously focused on retail real estate added this asset class to their acquisition criteria in search of higher yields.”

Institutional and private investors continue to seek investment opportunities within the single tenant medical sector. Long term leases to the larger credits in the sector (hospital systems and Fresenius/DaVita) will generate the lowest cap rates within the medical sector.

“1031 and private buyers are the primary buyers of the larger credits in the sector (hospital systems and Fresenius/DaVita) due to the cap rates associated with these properties,” John Feeney, Senior Vice President, The Boulder Group adds.

Investor demand for the single tenant net lease medical sector will remain strong. “The long term outlook for this asset class combined with the expansion of medtail real estate will create a steady pipeline of property supply for investors,” according to Blankstein. “The net lease medical sector will continue to provide investors protection from e-commerce and inflation as many medical leases have structured rental escalations throughout the term of the lease.”

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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Randy Blankstein
@TheBoulderGroup
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