CHICAGO—The single tenant net lease big box sector saw a significant shift in 2015, according to the latest report from the Boulder Group, a net lease firm based in suburban Chicago. Cap rates compressed from the fourth quarter of 2014 to the fourth quarter of 2015 by 63 bps to 6.08%. That decline was steeper than seen in the entire net lease retail sector, which compressed by only 25 bps during the same period. This represents the first time since 2010 that the big box sector was priced at a premium to the entire retail net lease market.

Boulder attributes much of the compression in the big box sector to the introduction of Walmart Neighborhood Market properties to many markets throughout 2015. The number of these stores available in the fourth quarter increased by about 200% when compared to the prior year and now make up about 22% of the big box sector. The median asking cap rate for these smaller Walmarts was 5.10% leading to much of the cap rate compression within this sector.

However, although developers plan to open another 100 of these Walmart Neighborhood Markets in fiscal 2017, "the amount of private investors targeting net lease assets over $10 million with cap rates below 5.50% is limited," Randy Blankstein, president of Boulder, tells GlobeSt.com. "Historically institutions were major buyers in this price range but almost all have yield thresholds above the current closing cap rates. As supply increases with a limited buyer pool, the marketing time for each property will increase."

Big box properties tenanted with investment grade rated tenants such as Walmart command a 155 bps point premium over those without. However, investment grade tenants make up only 40% of the sector's supply. 

Boulder expects that investors will continue to target long term leased big box properties with investment grade tenants because these are easier to finance.

"However, it should be noted that there is a lack of development and expansion for the major tenants in this sector excluding Walmart Neighborhood Market," the report notes. "With limited new development, investors may seek vintage properties recently backfilled with new big box users or properties with extended leases."