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Single-Tenant Net Lease Retail Cap Rates Rise With Interest Rates

Cap rates for the single-tenant net lease retail sector increased by five basis points in the third quarter to 6.25 percent, reported Boulder Group, Northbrook, Ill. “This represented the third consecutive quarter of increased cap rates for the single-tenant retail sector,” said Boulder Group Senior Vice President John Feeney.


“The upward trend of cap rates should remain as the Federal Reserve continues to implement its monetary policy objectives.” Marcus & Millichap, Calabasas, Calif., agreed the single-tenant net lease retail sector could be “substantively impacted” by the Fed’s interest rate increases because these assets typically respond strongly to the 10-year Treasury rate. “This will coalesce with other components such as brand, location and lease terms when determining going-in cap rates,” the firm’s Net Lease Retail Report said.

“For example, dollar store yields can vastly differ as a number of these assets are in rural locations, providing potential for higher returns. Conversely, yields for convenience stores and quick-service restaurants typically maintain a much smaller range due to their tempered sensitivity to key determinants of cap rates.”

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