Net Lease Cap Rates Reach New All-Time Low

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A Boulder Group report shows that cap rates for all three asset classes have reached historic levels

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A Boulder Group report shows that net lease cap rates for all three asset classes have reached historic levels

The Boulder Group announced the release of its 4th Quarter Net Lease Research Report today. In the fourth quarter cap rates in the single tenant net lease retail, office and industrial sectors reached a new all-time low. Single tenant industrial cap rates compressed by 13 basis points to 6.75% while retail cap rates compressed by six basis points to 6.00% and office cap rates remained at third quarter levels (6.90%).

“Cap rates continued at record low levels due to the historically low interest rate environment combined with a flight to quality in the net lease sector by investors,” says Randy Blankstein, President, The Boulder Group. “Industrial cap rates experienced the greatest movement resulting from e-commerce’s accelerated growth during the pandemic.”

While cap rates in the 4th quarter reached unchartered low levels for all three asset classes, there is uncertainty looming in 2021. There is a mixed forecast from net lease investors as it relates to future cap rate movement with the aforementioned uncertainty.

“Many investors are carefully monitoring the investment landscape to see the effectiveness of the Covid-19 vaccines and the timing of the economy’s full reopening,” adds Jimmy Goodman, Partner, The Boulder Group. “Additionally, the new presidential administration and possible Democratic control of the senate could put Section 1031 exchanges in potential jeopardy which would in turn severely impact the net lease sector.”

Throughout 2020, the net lease sector continued to be impacted by the broader economic effects of Covid-19. Transaction volume in 2019 represented a peak for the net lease sector.

“Overall transaction volume for 2020 was dragged down by a dismal second quarter with only $12 billion in transactions,” John Feeney, Senior Vice President, The Boulder Group adds. “While, the 4th quarter of 2020 is expected to be the strongest quarter of the year once transactions volumes are tabulated; 2020 transaction volume ended the year down significantly when compared to 2019.”

Investor demand for the net lease sector should remain active throughout 2021 especially for high quality tenants in essential businesses.

“Investors will be carefully monitoring the lingering effects of Covid-19 on the economy and various business sectors as well as the effectiveness of the Covid-19 vaccines,” according to Blankstein. “Following a year of sporadic transaction velocity, the expectation is that transactions will be concentrated in specific segments of the sector, especially for retail.”

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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