Historically Low Cap Rates Go Up Slightly

CHICAGO- The cap rates for single-tenant net leased retail and office properties increased for the first time in two years during the third quarter, according to a new report from The Boulder Group, a commercial real estate services firm located in suburban Chicago. The historically low rates for retail, however, only went up 2 bps, from 7.00% to 7.02%, while office rates went from 7.54% to 7.70%. The cap rates for industrial properties remained steady at 8%. 

Boulder attributes the bump in cap rates to the increase in interest rates that hit over the summer. Some sectors of the market, however, seem immune. “Cap rates for net leased properties valued below $8 million have not experienced the same cap rate impact,” the firm notes. “Properties priced below $8 million are in the highest demand amongst individual investors. Individual investors are more likely to pay lower cap rates than an institutional investor as they do not have to meet the same return hurdles and frequently utilize 1031 Exchanges.”