Single-Tenant Net Lease Deals Soared 26% in Q1

In Q1 2024, single-tenant net lease market continued its consistent performance, according to Northmarq, with investment sales activity soaring by 26% from the prior quarter with levels to $11.2 billion. And while this represents a slight 4.5% decline compared to this time last year, these first three months of 2024 put the market on a promising trajectory to surpass 2023’s total.

Average cap rates for the combined net lease sector increased 20 basis points during Q1 to 6.50% – the highest average seen since mid-year 2015, according to Northmarq’s report.

Single-tenant office cap rates are the highest at 6.81%, while retail remains the lowest at 6.38%. Year-over-year, however, the net lease industrial sector has seen the most significant increases.

At 6.55%, industrial cap rates now sit 102 basis points higher than this time last year.

Buyers and sellers continue to adjust their pricing expectations, which should result in further increases across all sectors throughout 2024.

A shift in buyer distribution across the single-tenant net lease market is showing, going from private buyers to REITs.

Private buyers regularly capture between one-third and one-half of all net lease activity but REITs have been stepping up lately.

With 36% of the overall single-tenant market, public REITs also dominated market share in the office and retail sectors.

In industrial acquisitions, they were not as pronounced, having been outpaced by a noticeable uptick in foreign capital investment.

“These observations don’t mean private investors are out of the market, however,” according to the report. “Ratios are likely to even out as the year progresses, but with interest rates still elevated, some individual investors who aren’t being driven to act by a 1031 exchange, for example, might decide to rest on the sidelines for a little while longer.”