The Boulder Group announced the release of its 3rd Quarter Net Lease Research Report today. The report features a comprehensive format with specific net lease sector information. Cap rates in the single tenant net lease sector increased for the 10th consecutive quarter within all three sectors in the third quarter of 2024. Single tenant cap rates increased to 6.50% (+3 bps) for retail, 7.75% (+8 bps) for office and 7.15% (+5 bps) for industrial.
“The persistent upward trend in cap rates can be primarily attributed to sustained high interest rates” says Randy Blankstein, President, The Boulder Group. “Additionally, there is a stagnant supply of net lease properties on the market resulting from limited transaction activity from both private and institutional buyers.”
The supply of properties in the single tenant sector continued to rise in the third quarter, increasing by 6% compared to the previous quarter. The supply of net lease properties is expected to grow as tenant expansion plans continue and sellers add supply to the market for reasons including loan and/or lease maturities, tenant concentration issues, etc. As developers begin to construct properties at higher yield on cost, the expectation is that cap rates will continue to expand aside from the most sought after properties, tenants and markets.
“The market continues to favor buyers as supply and demand dynamics play out, allowing investors to be more selective and demand higher yields” adds Jimmy Goodman, Partner, The Boulder Group.
Current sellers of net lease properties, whether developers or owners, hope that the recent 50 basis point cut in the federal funds rate will increase transaction velocity and potentially improve pricing in their favor.
“Most market participants remain cautious, and do not expect cap rates to compress in the near future unless there are continued rate cuts” John Feeney, Senior Vice President, The Boulder Group adds.
It is expected that the 1031 market will need two or three quarters of increased activity in order to absorb supply in the net lease market. It is important to note that historically, interest rate moves do not immediately correlate to net lease cap rates as a lag exists.
Despite a low probability in cap rate compression, the expectation is that the recent federal funds rate cut will assist in spurring transactions. Lower borrowing costs may encourage some buyers who have been sitting on the sidelines to re-enter the market, increasing buyer demand. Investors will continue to monitor the Federal Reserve’s monetary policy and its impact on the capital markets. The potential for further rate cuts in 2024 could gradually improve the transaction velocity and pricing in the net landscape near the mid-point of 2025.
To view the full report: https://bouldergroup.com/media/pdf/2024-Q3-Net-Lease-Research-Report.pdf
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 $9 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.
Media ContactCompany Name: The Boulder GroupContact Person: Randy BlanksteinEmail: Send EmailPhone: 8478816388Address:3520 Lake Avenue Suite 203City: WilmetteState: IllinoisCountry: United StatesWebsite: https://www.bouldergroup.com/NNN-Properties-For-Sale.html
