The story of cap rate movement in 2010 is a tale of two trends. Beginning with promise and an increase in NNN deal making, the year quickly faded in the wake of poor global economic news – only to rebound and rally around mid-year in select markets (headlined by New York and Washington D.C.). Overall, cap rates in the second half of the year were lower than the first. In fact, sellers of credit rated NNN properties in core markets closed at cap rates rivaling the 2007 peak of the market. Numerous reasons have been offered as the cause but chief among these were a lack of quality supply, a more positive lending environment and improving market fundamentals.

It is no secret that there was dramatic contraction in development over the past two years. The pause in expansion by national retailers coupled with stagnant retail sales and the tight debt market all but encouraged already wary developers to halt or slow projects slated for development. Those eager to invest quickly discovered that NNN properties were in short supply and properties of real quality in strong primary markets were even rarer still. In early summer, these factors created a dwindling pool of quality investment grade NNN assets.

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