CHICAGO—The historically low cap rates for all major net lease sectors remained unchanged or declined in the fourth quarter, according to a new report from the Boulder Group, a net lease firm in suburban Chicago. Single tenant retail properties remained at their historic low rate of 6.25% and rates for the office and industrial sector reached new historic lows of 7.00% and 7.44%. Over the course of 2015, cap rates for retail, office, and industrial properties declined by 15, 35 and 26 bps respectively.
Investors' interest has increased due to the stable returns generated by this asset class, Boulder officials say. And this intense competition is happening as the supply of net lease assets on the market goes down. From the third quarter of 2015 to the fourth quarter of 2015, the overall supply decreased by more than 11%. Retail assets experienced the largest decline of 12.5%.
"The fourth quarter represented the first time in 2015 that the cap rate spread between asking and closed pricing increased for retail properties," the study says, as buyers pushback on the aggressive pricing sellers have been seeking this year. The spread for retail increased from 18 bps to 23 bps and for office properties it increased from 33 bps to 39 bps.
Everything points to the net lease market remaining active in 2016. But there is also expectation that there will only be limited movement in valuations. In a recent national survey conducted by the Boulder Group, for example, the majority of active net lease participants expect cap rates to remain unchanged or rise slightly this year. And the largest segments of net lease participants expect cap rates to remain unchanged from 2015 levels by the end of 2016.
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
