That's among the findings of the Q2 Net Lease Market Report from Northbrook, IL-based Boulder Net Lease Funds LLC, released Wednesday afternoon.
Though the bid-ask gap still exists, Boulder reports that seller expectations are being tempered by the tough market environment. As a result, properties newly coming on the market for sale "are being introduced to the market with rational seller expectation on cap rates" but also are generally of a higher quality, which is reflected in more expensive price-per-square-foot values.
At the same time, buyers are still hesitant, and are largely only cherry-picking the strongest assets. "General buyer sentiment continues to be negative due to the looming CMBS default problem," says the report, authored by Boulder vice president Noah Gottlieb.
"Boulder believes that general market sentiment is quite negative, as all potential buyers presume that the lack of debt combined with a pending supply glut (due to expiring debt obligations) will force further downward pricing adjustments in the third and fourth quarters," the report concludes.
I'm not waiting for things to change much. This bid-ask spread has not gone away, the debt problem hasn't corrected," Boulder president Randy Blankstein tells GlobeSt.com. "I don't see anything in the next six months that will move this market."
Other findings from Boulder's report:
- Overall supply of net lease properties for sale is down to about $50 billion, the lowest level since Q2 2006, according to Boulder, which has been tracking the market since Q4 2003.
- Across the net lease property types, assets newly listed for sale was also down in the second quarter. New office properties brought to market was down 22% and new industrial properties brought to market decreased 43%, though retail bucked the trend with a slight increase in properties newly put on the market.
- The number of net lease office assets sold during Q2 decreased by almost 60% compared to Q1, or 48% below the historic quarterly average, according to Boulder.
- Cap rates for the net lease retail sector increased 20 basis points during Q2.
- In the net lease industrial sector, "activity has all but dried up," according to Boulder.
- Boulder reports Q2 mean cap rates of 8% for all three net lease property sectors.
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