The pandemic is still with us, but the markets are beginning to absorb what is tiringly called the "New Normal." Avison Young's Third Quarter Cap Rate Report reveals as much, pointing to an increase in net lease activity by 13.8 percent over the previous quarter, reflecting a 40-deal jump. Of course, we're watching the current resurgence in COVID-19 cases for indications that the disease will once again impact market activity.
Meanwhile, however, the market reflects the current economic rally, if that's not too strong a word. Cap rates have risen only minimally throughout the year, probably a reflection of investor focus on those sectors they felt were most stable. In the third quarter, that meant Automotive, Quick-service restaurants, Pharmacies and Dollar stores.
Breaking that down, the Automotive sector saw a cap rate hike of 21.2 basis points (bps) to 6.5 percent on 37 deals tracked. Ninety-one QSR trades in the quarter saw cap rates drop slightly, from 5.72 percent to 5.61 percent. Ditto Pharmacies, which dipped only 0.6 bps—to 6.30 percent–on 56 deals. Finally, Dollar Stores, always a strong performer, went from a second quarter cap rate of 7.11 percent to 6.93 percent, an 18.5-bp change, based on 75 transactions. All of the above sectors enjoyed lease terms north of 11 years.
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