Retail Cap Rates Hit Historic Low

CHICAGO—Equity continues to enter the commercial real estate sector and push down cap rates for net lease properties, according to a new report from the Boulder Group, a commercial real estate firm located in suburban Chicago. After hovering steady at 6.5% for several quarters, cap rates in the first quarter of 2015 for the single tenant net lease retail sector reached a new historic low of 6.4%. Furthermore, a renewed faith in the nation’s industrial sector resulted in a precipitous drop from 8.03% to 7.7% for industrial properties. Office cap rates rose slightly to 7.35%.

Retail assets have long commanded the lowest cap rates due to demand from private and 1031 investors who “prefer retail over office and industrial due to their familiarity with the tenants,” Randy Blankstein, president of Boulder, tells GlobeSt.com. “The brand name is what attracts investors initially and then they move on to the other criteria.” Retail properties typically have long leases, lower prices and triple net lease structures that allow these owners to remain largely passive.