The Boulder Group announced the release of its 4th Quarter Net Lease Research Report today. Cap rates in the single tenant net lease sector rose slightly in the fourth quarter of 2021; following historic low levels reached in the third quarter of 2021. Cap rates for retail and industrial increased slightly to 5.88% and 6.77% respectively. Cap rates for net lease office remained unchanged at 6.80%.
“Low interest rates and substantial amounts of investment capital chasing stable yields created an active net lease market throughout 2021” says Randy Blankstein, President, The Boulder Group. “Net lease transaction volume in 2021 exceeded $90 billion, a new record for the net lease sector.”
A limited supply of net lease properties with attributes that command low cap rates (long term leases, primary market locations, investment grade tenants, etc.) was the main contributing factor for the change in cap rates. However overall, property supply in the fourth quarter of 2021 increased by more than 10%.
“As a result of the low cap rate environment and high demand for net lease properties, net lease owners added lesser quality properties to the market to take advantage of attractive pricing,” adds Jimmy Goodman, Partner, The Boulder Group.
Many of the assets contributing to the increase in supply are perceived lower quality (shorter term leases, non-investment grade tenants, etc.).
“In the fourth quarter of 2021, less than 25% of the property supply had leases with more than 15 years remaining on their primary term” John Feeney, Senior Vice President, The Boulder Group adds.
The net lease market for all asset classes is expected to remain active in 2022 following a year of record activity. In a recent national survey conducted by The Boulder Group, the vast majority of active net lease participants expect transaction volume in 2022 to surpass 2021. Furthermore, the largest segment of net lease participants expecting cap rates to remain relatively stable throughout 2022.
“Investors will carefully monitor the capital markets and the effect on pricing as rate hikes are expected from the Federal Reserve in 2022” according to Blankstein.
To view the full report: https://bouldergroup.com/media/pdf/2021-Q4-Net-Lease-Research-Report.pdf