Inflation has finally pushed cap rates in the single tenant net lease sector to increase, with cap rates ticking up by five basis points for retail and by seven basis points for the office sector in the second quarter. Cap rates for single tenant industrial, meanwhile, remained unchanged from Q1, according to the Boulder Group.

The recent series of rate hikes by the Federal Reserve and rising inflation led to increased borrowing costs, pushing up cap rates. The June hike of 75 basis points was the Fed's largest since 1994, while the 10-year Treasury yield surpassed 3%, hitting 3.5% mid-month. This "created a pause for some net lease investors looking to acquire assets at higher cap rates," Boulder Group analysts said.

"Some sellers may choose to hold assets versus a sale given a decline in value," adds Jimmy Goodman, Partner, The Boulder Group. "Consequently, transaction volume in the second quarter of 2022 was down approximately 15% when compared to the same time period in 2021."