Cap Rates For Net Lease Retail and Industrial Reach New All-Time Low

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A Boulder Group report cites historic investor demand for net lease as a primary factor

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"In the first quarter cap rates in the single tenant net lease sector reached historic lows for the retail and industrial sectors"

The Boulder Group announced the release of its 1st Quarter Net Lease Research Report today. In the first quarter cap rates in the single tenant net lease sector reached historic lows for the retail and industrial sectors. Single tenant retail cap rates compressed by 9 basis points to 5.91%, while industrial compressed by 4 basis points to 6.71%. Office cap rates increased by 5 basis points to 6.95%

“Cap rate compression for retail and industrial assets can be best attributed to investor demand for secure cash flow streams” says Randy Blankstein, President, The Boulder Group. “Office cap rates increased due to general concerns regarding office utilization following the pandemic.”

Despite a 9% percent increase in property supply in the first quarter of 2021, there remains a lack of high-quality assets with long term leases in the net lease market. Accordingly, owners of lower quality assets brought properties to the market in attempt to take advantage of the compressed cap rate environment.

“The limited supply of high quality assets, created increased competition amongst investors,” adds Jimmy Goodman, Partner, The Boulder Group. “This competition has created significant pressure on cap rates despite the recent uptick in the 10 year treasury yield.”

As the effects of Covid-19 continues to surround the net lease landscape, many passive investors shifted their focus to essential business related tenants

“Some of the essential business tenants commanded the most attention from investors and warranted the lowest cap rates in the sector,” John Feeney, Senior Vice President, The Boulder Group adds. “In the first quarter of 2021, 7-Eleven, CVS and McDonald’s cap rates were 4.90%, 5.00% and 4.00% respectively for assets that were recently constructed.”

Transaction volume in the net lease sector should remain active, especially as optimism increases following the economy’s recovery from Covid-19. 1031 and private capital investors will continue to seek assets with long term leases, strong tenants and top metro locations, causing cap rates for these assets to remain low.

“Certain segments including fitness and second tier casual dining should become more investable at pre-pandemic pricing again,” according to Blankstein. “Investors will be carefully monitoring the economy as it looks to recover from the pandemic combined with the impact of multiple rounds of stimulus.”

To view the full report:

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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