Cap rates in the single tenant net lease sector increased for the third consecutive quarter in the fourth quarter of 2022, according to new research from The Boulder Group.  Single tenant cap rates increased to 5.95%, an increase of 9 bps, for retail, 6.95% (+15 bps) for office and 6.65% (+4 bps) for industrial in the quarter.

"Continued upward pressure mounts on cap rates for net leased properties," says Randy Blankstein, President, The Boulder Group. "Borrowing costs for both private and institutional investors continued to rise over the course of 2022. For reference, the 10 Year Treasury Yield ended 2022 at 3.87% after beginning the year at 1.53%."

Analysts say the market supply of net lease assets ticked up in the fourth quarter as deal flow slowed and properties remained on the market for longer periods of time. Cap rates for retail, office and industrial were all near historic lows in the first quarter of 2022, but rose for retail and office throughout the year as borrowing costs increased. Single tenant retail cap rates rose by 20 basis points while office cap rates expanded by 25 basis points from Q1 to Q4. Industrial cap rates widened by just 5 basis points, according to The Boulder Group.