Like much of the net-lease market, Dollar General cap rates have been compressing since 2009. However, as we approach the end of 2015, it is increasingly likely average cap rates for Dollar General stores will set an all time new record.
While a portion of this compression can be attributed to increased demand across real estate in general, a major driver is change in product type, with new structures constituting a larger portion of sales.
After it failed to merge with Family Dollar, the company set out to use increased store construction as a growth engine. Because new stores tend to be fifteen year triple-net deals, newer stores entered the market and average cap rates compressed. Indeed, the average lease term for a sold Dollar General increased from 10.1 years in 2014 to 12.3 years in 2015, a 22% increase.
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Cap rates ticked up slightly in the third quarter perhaps simply due to noise in the data. It will be interesting to see what happens in Q1 2016 and if there is actually a trend here.
The graph below shows Dollar General cap rates since 2009. You can read more about them in Calkain's forthcoming Dollar Store Report.
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Jonathan Hipp
Jonathan Hipp began his career in real estate over 25 years ago. In his early years as a broker, he ventured into the net lease industry and quickly began leading the US net lease market, closing over $3 billion in transactions. In 2005, Jon founded Calkain Companies, a company focused solely on net lease investment services. As President and CEO, he has been instrumental in building the firm into one of the leading Net Lease real estate companies, transacting over $12 billion of net lease deal volume over the past 13 years. He has expanded Calkain’s services to include brokerage, advisory, asset management, capital markets, and industry research. He has become a well-known resource, panelist, and speaker at various Net Lease and Industry conferences and is a regular contributor to GlobeSt.com on real estate trends. In June 2015, Jon’s passion for the real estate business was again recognized as he was nominated for the Top Real Estate Player in the DC area by SmartCEO magazine.
