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Single-Tenant Net Lease Cap Rates Reach New Lows

Cap rates for single tenant net lease retail, office and industrial reached new all-time lows in the fourth quarter, the Boulder Group says in a new report. However, the firm notes a decline in transaction volume during 2020 and cites uncertainty looming in the year ahead.

“Cap rates continued at record low levels due to the historically low interest-rate environment combined with a flight to quality in the net lease sector by investors,” said Randy Blankstein, president, The Boulder Group. “Industrial cap rates experienced the greatest movement resulting from e-commerce’s accelerated growth during the pandemic.”

Given the uncertainty ahead, “Many investors are carefully monitoring the investment landscape to see the effectiveness of the COVID-19 vaccines and the timing of the economy’s full reopening,” said Boulder Group partner Jimmy Goodman. “Additionally, the new presidential administration and possible Democratic control of the Senate could put Section 1031 exchanges in potential jeopardy, which would in turn severely impact the net lease sector.”

Throughout 2020, the net lease sector continued to be impacted by the broader economic effects of Covid-19. Transaction volume in 2019 represented a peak for net lease.

“Overall transaction volume for 2020 was dragged down by a dismal second quarter with only $12 billion in transactions,” said SVP John Feeney.  

Although Q4 is expected to be the strongest quarterly tally of the year once transactions are tabulated; “2020 transaction volume ended the year down significantly when compared to 2019,” Feeney added.

That being the case, The Boulder Group says investor demand for the net lease sector should remain active throughout 2021, especially for high-quality tenants in essential businesses.

Pictured: This Maple Grove, MN industrial facility, triple-net leased to GAF Materials, traded in December.

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About Paul Bubny

Paul Bubny serves as Senior Content Director for Connect Commercial Real Estate, a role to which he brings 13-plus years’ experience covering the commercial real estate industry and 30-plus years in business-to-business journalism. In this capacity, he oversees daily operations while also reporting on both local/regional markets and national trends, covering individual transactions across all property types, as well as delving into broader subject matter. He produces 15-20 daily news stories per day and works with the Connect team and clients to develop longer-form content, ranging from Q&As to thought-leadership pieces. Prior to joining Connect, Paul was Managing Editor for both Real Estate Forum and at American Lawyer Media, where he oversaw operations at both publications while also producing daily news and feature-length articles. His tenure in B2B publishing stretches back into the print era, and he has served as Editor in Chief on four national trade publications. Since 1999, Paul has volunteered as the newsletter editor of passenger rail advocacy groups (one national, one local).

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