Retail Cap Rates Stay at Historic Low

CHICAGO—As reported in GlobeSt.com, cap rates for single tenant net lease properties have fallen steadily for several years, regularly hitting new historic lows each quarter as more investors put in bids. In the most recent quarters, however, cap rates for retail properties held steady, according to research reports by the Boulder Group, a commercial real estate firm located in suburban Chicago. In the fourth quarter, for example, Boulder found that retail rates were 6.5%, the same as the third but still a historic low. Rates for the office sector, however, compressed by nine bps to a new historic low of 7.31%.  And net lease industrial cap rates rose slightly to 8.03%.    

“Stable capital markets have caused investors to hold firm at pricing for retail assets in order to achieve desired returns,” the firm found. “However, long term leases in core markets continue to demand an additional premium.” And the low rates have had a big impact on who purchases these types of properties. In 2014, 60% of retail transactions were completed by private investors, up from 42% the previous year. “Private buyers continue to dominate the net lease market in the low cap rate environment as institutions cannot typically pay the cap rate premiums due to yield restrictions.”