For the sixth consecutive quarter, investment sales in the single-tenant net lease sector declined, hitting just $9.4 billion in the second quarter, according to a Northmarq report.
Although this represents a "modest decline" from the $10.9 billion sold in the first quarter, it constitutes a 54% slump year-over-year, the report noted, "suggesting more than a just summer slowdown."
The sales drop-off is occurring after several years in which demand outstripped available supply. Northmarq attributes the trend to rising interest rates and tighter lending standards.
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Worst hit among the single-tenant sectors was retail which had sales of only $1.9 billion – 52% down from 1Q2023. By contrast, 2Q2023 sales rose compared to the previous quarter for the office sector, with $2 billion in sales, and industrial, with $5.5 billion. However, both figures were 50% to 60% lower year-over-year.
Average cap rates showed significant movement. "In just the last three months, the overall single-tenant net lease average jumped 21 basis points to end mid-year at 5.95%," the report found – the highest in nearly two years. The largest increase — 46 basis points — was for the industrial market to reach 5.95%, followed by the office sector – which rose 16 basis points to 6.38%, and retail – up 15 basis points to 5.83%.
"The last three months saw aggressive increases, and there could be some fluctuation before rates settle into a more moderate upward trajectory," the report cautioned.
The report also noted that the share of international buyers in the year to date rose to 15%, the highest in four years.
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