The net lease market is continuing to adjust to the higher rate environment, navigating the challenges of elevated borrowing costs and inflationary pressures. According to The Boulder Group’s latest research report, transaction volumes are expected to see a modest increase this year, following a rise during the fourth quarter of 2024. However, the report cautions that while declining short-term rates and lingering financial market uncertainty may spur activity, it is unlikely to match the pricing or transaction peaks seen in 2020 and 2021.

Single-tenant net lease cap rates rose for the 12th consecutive quarter in Q1 2025, reaching an average of 6.78%, a two-basis-point increase from the previous quarter. Retail cap rates climbed by four basis points to 6.56%, office cap rates edged up two basis points to 7.8%, while industrial cap rates remained steady at 7.23%. “The persistent upward trend in net lease cap rates now spans three years,” said Randy Blankstein, president of The Boulder Group. “This reflects sustained high borrowing costs and inflationary pressures.”

The supply of single-tenant properties has surged, growing over 5% compared to Q4 2024 and nearly 30% over the past two years. This increase stems from lower transaction velocity and a widening pricing gap between buyers and sellers. Retail property supply rose by 6.7% to 4,192 assets in Q1, office supply increased slightly by 0.6% to 654 properties, and industrial supply expanded by 1.8% to 575 properties.