Cap Rates for Single Tenant Big Box Properties Compress

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The Boulder Group cites increased investor interest for grocery and home improvement tenants as the primary reason

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Cap rates in the single tenant net lease big box sector decreased by 25 basis points to 6.75%

The Boulder Group announced the release of its Net Lease Big Box Report today. In the fourth quarter national asking cap rates in the single tenant big box sector decreased to 6.75%, according to the 2020 Net Lease Big Box Report. This represented a 25 basis point decrease when compared to the prior year.

“The decrease in cap rates can be primarily attributed an increased appetite from investors for big box tenants that operate in the essential business category such as grocery related and home improvement” says Randy Blankstein, President, The Boulder Group.

Despite the headlines surrounding retail and the Covid-19 pandemic; demand in the marketplace for big box retail assets was strong for specific tenants. Investment grade tenants within essential and operating businesses experienced an increased demand from investors in both the private and institutional sectors.

“The grocery sector was the winner during the pandemic in addition to other retailers including Walmart, Costco, Target, Home Depot and Lowe’s” adds Jimmy Goodman, Partner, The Boulder Group. “In the fourth quarter of 2020, properties with grocery related tenancy accounted for more than 30% of the market.”

While investors sought investment grade retailers in essential businesses throughout the pandemic, tenants in businesses that were targeted by governmental shutdowns experienced the opposite effect. Tenants in the fitness, movie theater and experiential retail categories suffered from the pandemic. Accordingly, investor interest in these categories was virtually non-existent. The challenges that the pandemic and e-commerce created for retailers resulted in net lease big box properties being priced at a 75 basis point discount to the overall net lease market.

“Tenant quality and financial resiliency will continue to be top of mind with net lease investors” John Feeney, Senior Vice President, The Boulder Group adds. “Cap rates for big box properties with investment grade rated tenants were 105 basis points lower than their non-investment grade counterparts.”

However, opportunistic real estate investors will carefully be monitoring the sector for non-credit big box properties. Investors will seek assets with strong underlying real estate or below market rents as these properties will provide above average returns with potential future value.

The single tenant net lease big box sector will remain bifurcated. “Investors will carefully monitor the continued effects of e-commerce’s growth and the impact of the Covid-19 pandemic,” according to Blankstein. “With higher returns available when compared to other net lease sectors, investors seeking higher yields will continue to target these assets and evaluate the big box retailer environment as it evolves.”

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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