THE NET LEASE MARKET REPORT Q4 2014 NATIONAL ASKING CAP RATES
MARKET OVERVIEW
Q3 2014 (Previous)
Q4 2014 (Current)
Basis Point Change
Retail
6.50%
6.50%
0
Office
7.40%
7.31%
-9
Industrial
8.00%
8.03%
+3
Sector
NUMBER OF PROPERTIES ON THE MARKET Sector
Q3 2014 (Previous)
Q4 2014 (Current)
Percentage Change
Retail
3,153
2,964
-6.0%
Office
395
300
-24.1%
Industrial
254
292
+15.0%
MEDIAN NATIONAL ASKING VS CLOSED CAP RATE SPREAD
Q3 2014 (Previous)
Q4 2014 (Current)
Basis Point Change
Retail
22
21
-1
Office
31
29
-2
Industrial
62
45
-17
Sector
Cap rates in the fourth quarter of 2014 for the single tenant net leased retail sector remained unchanged at their historic low cap rate of 6.50% for the third consecutive quarter. Additionally, cap rates for the net lease office sector compressed by nine basis points to a new historic low cap rate of 7.31%. Net lease industrial cap rates rose slightly to 8.03% during this period. Limited movement in interest rates and a restricted development pipeline are contributing factors to the stagnant cap rates in the retail sector. Stable capital markets have caused investors to hold firm at pricing for retail assets in order to achieve desired returns. However, long term leases in core markets continue to demand an additional premium. In 2014, a notable change occurred in the buyer type for the retail net lease market. In 2014, private investors accounted for 60% of net lease retail transactions, a significant increase when compared to 42% in 2013. Private buyers continue to dominate the net lease market in the low cap rate environment as institutions cannot typically pay the cap rate premiums due to yield restrictions. The majority of investors acquiring low cap rate properties, including 1031 exchange investors, are seeking new construction assets with investment grade tenants. For example newly constructed Walgreens, McDonald’s ground leases and 7-Eleven properties experienced cap rate compression of 5, 25 and 13 basis points respectively in the fourth quarter. The net lease market is expected to remain active in 2015 as investor demand for this asset class continues, however the expectation is that there will be limited movement in valuations moving forward. In a recent national survey conducted by The Boulder Group, the majority of active net lease participants expect cap rates to remain unchanged or rise in 2015. The largest segment of net lease participants expect cap rates to rise slightly from 2014 levels by the end of 2015.
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THE NET LEASE MARKET REPORT Q4 2014 SELECTED SINGLE TENANT SALES COMPARABLES Sale Date
Sector
Tenant
City
State
Price
Price Per SF
Cap Rate
Lease Term Remaining
Oct-14
Office
Mallinckrodt Pharmaceuticals
St. Louis
MO
$22,800,000
$254
7.61%
10
Oct-14
Retail
Lowe's (GL)
Silverdale
WA
$13,800,000
--
4.85%
14
Oct-14
Retail
Walgreens
Gretna
LA
$11,410,000
$662
5.52%
25
Nov-14
Retail
Petco
Denver
CO
$11,350,000
$492
6.20%
10
Oct-14
Office
Commercial Contact Channels
Tucson
AZ
$9,890,000
$152
8.28%
7
Nov-14
Retail
Walgreens
Austin
TX
$6,790,000
$497
5.95%
15
Nov-14
Retail
The Fresh Market
St. Petersburg
FL
$6,350,000
$343
6.41%
11
Nov-14
Retail
Rite Aid
Shasta Lake
CA
$6,260,000
$362
6.53%
12
Nov-14
Retail
CVS
Phoenix
AZ
$5,800,000
414
6.00%
18
Nov-14
Retail
Walgreens
Cleveland
OH
$5,385,000
$372
6.90%
7
Oct-14
Industrial
CNH Equipment
Sparks
NV
$5,300,000
$207
6.68%
8
Oct-14
Industrial
Pactiv Corporation
Fresno
CA
$5,250,000
$40
8.08%
3
Q1 2012
Q1 2013
NET LEASE CAP RATE TRENDS 9.25% 8.75% 8.25% 7.75% 7.25% 6.75%
6.25% Q1 2007
Q1 2008
Q1 2009
Q1 2010
Q1 2011
Retail
Q1 2014 Office
Industrial
666 Dundee Road, Suite 1801 Northbrook, IL 60062
www.bouldergroup.com
THE NET LEASE MARKET REPORT Q4 2014 MEDIAN ASKING CAP RATES BY YEAR BUILT
THE BOULDER GROUP CAP RATE POLL
Tenant 7-Eleven
20102014 4.75%
20052009 5.50%
20002004 5.75%
Pre 2000 6.00%
Advance Auto Parts
6.00%
6.75%
7.26%
7.43%
AutoZone
5.00%
5.35%
N/A
6.25%
N/A
4.50%
5.00%
N/A
Chase (GL)
4.00%
4.45%
4.50%
N/A
CVS
5.35%
5.75%
6.03%
7.00%
DaVita
5.75%
6.75%
7.35%
7.70%
Dollar General
6.50%
7.80%
8.00%
9.59%
Family Dollar
7.25%
8.00%
8.25%
9.25%
FedEx
6.00%
6.96%
8.13%
8.50%
Fresenius
6.03%
6.96%
7.80%
8.08%
GSA
7.28%
8.00%
8.52%
8.85%
McDonald's (GL)
3.75%
4.10%
4.25%
N/A
O'Reilly Auto Parts
5.75%
5.80%
6.50%
6.76%
PNC (GL)
4.40%
5.00%
5.95%
6.00%
Rite Aid
6.00%
6.75%
7.25%
8.65%
Walgreens
5.25%
5.55%
5.95%
7.00%
N/A
4.63%
4.75%
5.00%
Bank of America (GL)
Wells Fargo (GL)
WHERE DO YOU EXPECT CAP RATES TO MOVE BY THE END OF 2015 Cap rates will move up 25 bps or more
(27%)
Cap rates will move up 1 bps to 24 bps
(29%)
Cap rates will remain unchanged Cap rates will move down 1 bps to 24 bps Cap rates will move down 25 bps or more
(27%)
(12%)
(5%)
FOR MORE INFORMATION AUTHOR John Feeney | Vice President john@bouldergroup.com
CONTRIBUTORS Randy Blankstein | President
Jimmy Goodman | Partner
Jordan Kaufman | Vice President
Zach Wright | Research Analyst
randy@bouldergroup.com
jimmy@bouldergroup.com
jordan@bouldergroup.com
zach@bouldergroup.com
Š 2015. The Boulder Group. Information herein has been obtained from databases owned and maintained by The Boulder Group as well as third party sources. We have not verified the information and we make no guarantee, warranty or representation about it. This information is provided for general illustrative purposes and not for any specific recommendation or purpose nor under any circumstances shall any of the above information be deemed legal advice or counsel. Reliance on this information is at the risk of the reader and The Boulder Group expressly disclaims any liability arising from the use of such information. This information is designed exclusively for use by The Boulder Group clients and cannot be reproduced, retransmitted or distributed without the express written consent of The Boulder Group.
666 Dundee Road, Suite 1801 Northbrook, IL 60062
www.bouldergroup.com