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Cap Rates Widen for Net-Leased Office and Retail
Cap rates for single-tenant net leased retail and office increased by five and seven basis points in the second quarter, The Boulder Group said in its latest report. Cap rates for single-tenant industrial were unchanged.
“Following record low cap rate levels for all three asset classes in the first quarter of 2022, the increase in borrowing costs and the current inflationary environment were the main determining factors for the change in cap rates,” said Randy Blankstein, president, The Boulder Group.
The Federal Reserve announced two rate hikes in Q2, most recently raising the federal funds rate by 75 bps, the biggest increase since 1994. Accordingly, for the first time since late 2018, the 10-year Treasury yield surpassed 3.00%, peaking near 3.50% in mid-June. This correlated to higher borrowing costs and created a pause for some net lease investors looking to acquire assets at higher cap rates.
“Some sellers may choose to hold assets versus a sale given a decline in value,” said Boulder Group partner Jimmy Goodman. “Consequently, transaction volume in the second quarter of 2022 was down approximately 15% when compared to the same time period in 2021.”
- ◦Sale/Acquisition
