Furthermore, “institutional buyers who previously acquired a significant number of dollar stores in large portfolios have limited their acquisition of this property type, leaving a greater remaining supply on the market. The significant increase of supply is the main contributing factor for the rise in cap rates experienced in the second quarter of 2017.”

Boulder expects the net lease dollar store sector to remain active as investors are attracted to its higher yields. When compared to other net lease sectors, in the second quarter dollar stores were priced at a 52 bp discount to the net lease retail market. And with a strong development pipeline, the dollar store market will remain saturated with long term leased properties.

CHICAGO—Dollar stores seem to be one of the healthier portions of a retail sector that otherwise has taken big hits due to e-commerce. Developers continue to complete new outlets for these tenants, and the increase in inventory has helped loosen up the market for investors.

Cap rates within the single tenant net lease dollar store sector increased by 10 bps to a 6.75% cap rate in the past year, according to a new report on the sector by The Boulder Group, a net lease firm in suburban Chicago. The company examined recent sales of free standing Dollar General, Dollar Tree and Family Dollar properties, the largest retailers within the sector. Cap rates for Dollar Tree assets compressed by 10 bps while Dollar General and Family Dollar, the two largest operators, experienced increases of 15 and 20 bps each, respectively.

Boulder says demand for Dollar Tree stores intensified a bit because the majority of its properties are located in primary markets or more densely-populated areas than most Dollar Generals or Family Dollars.

Overall supply of single tenant dollar store properties increased by 34% in the second quarter of 2017 when compared to the second quarter of 2016, Boulder says. And properties built in the past 12 months comprised over 57% of the supply of net lease dollar stores.

Furthermore, “institutional buyers who previously acquired a significant number of dollar stores in large portfolios have limited their acquisition of this property type, leaving a greater remaining supply on the market. The significant increase of supply is the main contributing factor for the rise in cap rates experienced in the second quarter of 2017.”

Boulder expects the net lease dollar store sector to remain active as investors are attracted to its higher yields. When compared to other net lease sectors, in the second quarter dollar stores were priced at a 52 bp discount to the net lease retail market. And with a strong development pipeline, the dollar store market will remain saturated with long term leased properties.