Oct
01

Net Lease Cap Rates Hold Steady at Historic Lows

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Cap rates for the single-tenant net-leased retail sector remained unchanged in the third quarter of 2014, at a historic low rate of 6.5 percent. Cap rates for the office sector compressed by 37 basis points to 7.4 percent, while those in the industrial sector rose by a mere three basis points to 8 percent. There were no major contributing factors to the leveling of retail cap rates, as supply and demand remained near levels from the previous quarter. During the third quarter, the 10-year Treasury yield dropped to its lowest point of the year (2.55 percent) in late August. However, by the end of the quarter, Treasury rates had risen, ending near levels similar to the end of the second quarter. With little movement in the capital markets, retail cap rates have plateaued, as buyers cannot meet acceptable return thresholds at lower cap rates due to the low interest-rate environment.

During the third quarter, the supply of office and industrial properties increased significantly — by 30 and 21 percent, respectively. Owners of these assets have attempted to take advantage of the current low retail cap rates by enticing investors with higher yields offered by office and industrial properties. The supply of retail properties increased by only 3.1 percent between the second and third quarters, as new construction remains limited with the exception of the dollar-store sector.

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Categories : National News

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