Net Lease Dollar Store Cap Rates Reach Three Year Low

Share Article

The Boulder Group cites heightened investor demand as the primary reason

News Image
Cap rates for the net lease dollar store sector reached a three year low in the second quarter of 2020

The Boulder Group announced the release of its Net Lease Dollar Store Report today. In the second quarter national asking cap rates in the single tenant dollar store sector decreased to 6.98%, according to the 2020 Net Lease Dollar Store Report. This represented a 12 basis point decrease when compared to the prior year.

“Cap rates for the net lease dollar store sector reached a three year low in the second quarter of 2020,” says Randy Blankstein, President, The Boulder Group. “However, the dollar store sector remained priced at a discount to the overall net lease retail market.”

Cap rates for all three of the major dollar store retailers (Dollar General, Family Dollar and Dollar Tree) compressed during this time frame. Cap rates for Dollar General, Family Dollar and Dollar Tree compressed by 15, 10 and 7 basis points respectively.

“Throughout the majority of 2020, dollar stores represented an important niche within the net lease sector as they were categorized as essential retailers during the Covid-19 pandemic,” adds Jimmy Goodman, Partner, The Boulder Group. “Investors, especially those in 1031 exchanges, pursued dollar store assets over other net lease options as dollar stores were open for business, experienced high sales volumes and had financing available.”

The increased demand for this sector is the primary contributing factor for the decrease in cap rates. Furthermore, the median remaining lease term for available properties during the second quarter increased by one year to approximately eleven years.

1031 investors with lower absolute dollar amount exchanges continue to flock to this sector. Dollar store properties offer investors long term leases to investment grade tenants at higher cap rates compared to the overall net lease market. Dollar store properties were priced at a 73 basis point discount to the overall net lease retail market (6.25%) in the second quarter of 2020.

“While the overall net lease market experienced a sharp decline in transaction volume of more than 20% through the first two quarters of 2020, transactions in the single tenant dollar store sector increased by approximately 3%,” John Feeney, Senior Vice President, The Boulder Group adds.

The net lease dollar store sector will continue to be active as investors are attracted to the higher yields this asset class generates when compared to other net lease sectors. A recent poll conducted by The Boulder Group illustrated the majority of net lease participants (62%) expect dollar store transactions to increase in the last two quarters of 2020 when compared to 2019.

“As dollar store retailers continue to perform in all types of economic environments, investors of all classes will continue to seek out these investments,” according to Blankstein. “New construction dollar stores will remain in the highest demand and the national expansion plans of the dollar store retailers will keep up supply regardless of their heightened demand.”

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.

Share article on social media or email:

View article via:

Pdf Print

Contact Author

Randy Blankstein
Follow >
Follow us on
Visit website