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Single-Tenant Net Lease Cap Rates Diverge

Single-tenant net lease property cap rate changes varied significantly by sector in the second quarter, new reports said.

Retail sector single-tenant net lease cap rates increased 10 basis points during the quarter, representing the sector’s largest cap rate increase since second quarter 2011. But cap rates compressed for the office and industrial sector by 5 and 25 basis points respectively, said John Feeney, Senior Vice President with Boulder Group, Northbrook, Ill.

“The primary sentiment among net lease investors is that cap rates should remain relatively stable and within the range of the past few years across all three asset classes,” Feeney said. “Investors will be carefully monitoring the monetary policy decisions of the Federal Reserve as well as the capital markets effect on pricing.”

NNNetAdvisors, Los Angeles, said the sector’s most notable trend was the spread between cap rates and treasury rates, which reached a post-recession low 3.22 percent during the quarter. “This measurement is important, as it is a general indicator of returns that investors can achieve when implementing debt on an acquisition,” the firm’s Net Lease Property Report said. The measure typically follows the movement of cap rates because most debt takes 60 days from rate lock to close. “Investors continue to weigh their increased cost of capital and push for more yield in cap as they underwrite and pursue future acquisitions,” the report said.


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Single-Tenant Net Lease Cap Rates Diverge