Michelle Napoli is editor of Net Lease forum, from which this article is excerpted.
Northbrook, IL—The gains being made may not be as big as they were earlier in the year, but the fourth quarter saw yet again a larger market of net lease properties available for sale.
That fact is among the findings in the Q4 2006 Net Lease Market Report from Northbrook, IL-based Boulder Net Lease Funds LLC. The report indicates more than 18,000 properties were on the market, with a combined value of more than $53 billion. In terms of number of assets, that's a 3.4% increase from the previous quarter, though in terms of cumulative value it actually decreased 0.3%. Third quarter's increase over Q2 was more than 20%.
The size of the market has been steadily growing since the third quarter of 2005, the Boulder report notes, and was at an all time high in Q3 2006. Beyond a smaller rate of growth, what has changed from the earlier quarter, however, is that while in Q3 of this year "cap rates increased as a result of the dramatic increase in supply, this quarter's cap rates generally went down as interest rates dropped."
Indeed, the report notes that industrial properties on the market have a mean cap rate of 8%, a 10 basis point decline, while office properties have a mean cap rate of 7.57%, a 33 basis point decline. Retail properties--roughly half the net lease property market--show the only increase, by five basis points, in mean cap rate, which is 7.25%. "This is interesting due to the high demand that constantly exists in the net lease market for retail assets given that they are the preferred acquisition for 1031 investors," the report notes.
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