Cap Rates Decline for Big Box Retail

CHICAGO—“Cap rates in the single tenant net leased big box sector compressed from the fourth quarter of 2013 to the fourth quarter of 2014 by 39 bps,” according to the latest report from the Boulder Group, a net lease firm based in suburban Chicago. The decline from a 7.10% cap rate last year to 6.71% by the end of last quarter parallels a similar decline in other retail properties. As reported in GlobeSt.com, Boulder found that rates in the net lease retail market sank from 6.85% last year to 6.50% in the fourth quarter, the data show. Still, that leaves a 21 bps gap between that market and the big box sector.

Boulder attributes that gap to the re-leasing risk associated with the much larger big box properties and their significantly higher prices. Net lease big box transaction velocity was down 47% in 2014 when compared to 2013, the firm found. Much of this was due to a lack of new construction as many tenants such as Hobby Lobby, Ross and T.J.Maxx were able to backfill second generation or inline space at low rents.