The net lease sector has been somewhat resistant to the Fed's rate hikes so far, but according to Gary Chou of Berkeley Capital Advisors in Orange County, Calif., "it's a matter of when, and not if, cap rates will start moving." 

Chou, who will be sharing his insights on the net lease investment market at this year's GlobeSt Net Lease conference in Los Angeles in October, says he's observing a broader upward pressure on cap rates across the board in the net lease space. In the early part of 2022, he says, that pressure was more localized around specific types or grade of properties.

"Throughout the year we started seeing little pockets of net lease start to shift," he says. "We've seen increased spreads on cap rates for deals that have varying degrees of quality. When COVID hit, everyone wanted Class A deals. They were scared of Class C and D deals. Last year in the frenzy, everything started compressing again and we started seeing five-year deals trading very similarly to 20-year deals. That normally doesn't make sense – and it's reasonable to expect that would start to change, regardless of whether the Fed hiked rates."