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Single-Tenant Net Lease Cap Rates Remain Near Record Lows
Tucker, Michael
Cap rates for the single-tenant net leased market remained near historic lows across the retail, office and industrial sectors in the fourth quarter, reported The Boulder Group, Northbrook, Ill.

Notably, cap rates for net leased retail properties declined 25 basis points to 7.25 percent and net leased industrial property cap rates fell 5 basis points to 8.15 percent. Cap rates for net leased office properties rose an insignificant 4 basis points to 8.04 percent in the quarter.

"Supply issues remain at the forefront of the net lease market as new construction is limited and there is a lack of existing supply of long-term net leased properties," said John Feeney, research director with The Boulder Group.

Feeney said the overall supply of net lease assets shrunk 14.4 percent over the fourth quarter. "One of the primary factors contributing to the lack of supply and new construction is that tenants are able to achieve low rents by backfilling second-generation retail space,” he said. “Additionally, as there is an increased fundraising environment with excess capital engaged to purchase this asset class, many properties being sold are not exposed to the public market.”

Finally, Feeney said, the current low interest rate environment has enabled property owners to refinance and hold properties rather than sell them.

Looking ahead, Feeney said the national single-tenant net lease market should remain active in 2013 “due to the stability and financing availability of this asset class."

The Boulder Group surveyed active net lease participants and reported that most—a full 64 percent—expect 2013 transaction volume to increase at least 5 percent over 2012 levels. Only 18 percent of survey respondents expect volume to fall 5 percent or more.

"Core assets with investment-grade tenants will remain in the highest demand, retaining low cap rates for these assets," Feeney said. "Cap rates will remain near current levels in 2013 as buyer demand remains high and new development remains limited."