THE NET LEASE MARKET REPORT Q2 2015 NATIONAL ASKING CAP RATES
MARKET OVERVIEW
Cap rates in the second quarter of 2015 for the single tenant net lease retail sector remained unchanged at their historic low rate of 6.40%. Cap rates for the office and industrial sector experienced slight downward movement of 5 and 8 basis respectively. Despite the Ten Year Treasury yield reaching its highest point of 2015 (2.47), investor demand has continued for this asset class. The increased demand in the net lease sector has caused cap rates to remain stable despite the increase in interest rates this quarter.
Q1 2015 (Previous)
Q2 2015 (Current)
Basis Point Change
Retail
6.40%
6.40%
0
Office
7.35%
7.30%
-5
Industrial
7.70%
7.62%
-8
Sector
NUMBER OF PROPERTIES ON THE MARKET
Owners of net lease product have released an increased supply to the market in the second quarter of 2015 in attempt to take advantage of the low cap rate environment. Overall supply of net lease assets was up over 21% in the second quarter, with retail assets leading all sectors at 23%. Even with an increased supply and compressed cap rate levels, bidding for net lease assets has been favorable to sellers. The median asking versus closed cap rate spread for all three sectors (retail, office and industrial) compressed slightly during this quarter.
Sector
Q1 2015 (Previous)
Q2 2015 (Current)
Percentage Change
Retail
2,742
3,372
23.0%
Office
312
371
18.9%
Industrial
307
342
11.4%
As limited opportunities exist for new construction and long term leased properties to investment grade tenants when compared to the investor demand, these assets are commanding the highest prices. Recently constructed Dollar General, PNC Bank and O’Reilly Auto Parts properties experienced cap rate compression of 12, 30 and 12 basis points respectively in the second quarter. Furthermore, McDonald’s ground leased assets continued to achieve the lowest cap rate levels in the sector. With investors carefully monitoring the capital markets for a potential rise in interest rates, pricing for institutional assets ($10 million and greater) will react first as these investors are more sensitive to interest rate fluctuations. Sellers will continue to seek aggressive pricing for their assets as the bidding environment remains competitive; however cap rates should remain near current levels in the near term.
MEDIAN NATIONAL ASKING VS CLOSED CAP RATE SPREAD
Q1 2015 (Previous)
Q2 2015 (Current)
Basis Point Change
Retail
19
18
-1
Office
35
32
-3
Industrial
39
37
-2
Sector
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THE NET LEASE MARKET REPORT Q2 2015 SELECTED SINGLE TENANT SALES COMPARABLES Sale Date
Sector
Tenant
City
State
Price
Price Per SF
Cap Rate
Lease Term Remaining
Apr-15
Retail
CVS
New Orleans
LA
$10,893,600
$801
5.48%
25
Apr-15
Retail
Walgreens
Oak Lawn
IL
$10,700,000
$735
5.28%
20
Apr-15
Retail
Walmart (GL)
Niles
IL
$9,685,000
--
4.89%
9
Apr-15
Retail
The Fresh Market
Creve Coeur
MO
$9,500,000
$370
5.30%
15
Apr-15
Industrial
FedEx Ground
Beaumont
TX
$9,078,000
$109
6.30%
10
Apr-15
Medical Office
Premier Surgery Center of Louisville
Louisville
KY
$8,000,000
$423
6.23%
13
Apr-15
Retail
Hobby Lobby
Jacksonville
NC
$7,900,000
$144
6.50%
15
May-15
Retail
CVS
Ware
MA
$7,790,000
$589
5.40%
19
May-15
Retail
Citibank
Alameda
CA
$6,000,000
$419
5.07%
10
Apr-15
Retail
Buca di Beppo
St. Paul
MN
$5,985,329
$504
7.00%
18
May-15
Retail
TD Bank (GL)
Winter Park
FL
$5,882,400
--
5.25%
19
Apr-15
Retail
Rite Aid
Marietta
GA
$5,350,000
$387
7.04%
8
May-15
Retail
Chase Bank (GL)
Phoenix
AZ
$5,300,000
--
4.30%
11
Apr-15
Retail
Rite Aid
Greenville
SC
$4,804,000
$347
6.75%
8
May-15
Retail
Walgreens
Independence
MO
$4,675,000
$259
6.50%
6
Apr-15
Retail
Kroger
Hendersonville
TN
$4,600,000
$78
6.72%
7
NET LEASE CAP RATE TRENDS 8.75% 8.25% 7.75% 7.25% 6.75% 6.25% Q1 2007
Q1 2008
Q1 2009
Q1 2010
Q1 2011
Q1 2012
Q1 2013
Q1 2014 Retail
Office
Q1 2015 Industrial
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THE NET LEASE MARKET REPORT Q2 2015 MEDIAN ASKING CAP RATES BY YEAR BUILT Tenant
2011-2015
2006-2010
2000-2005
Pre 2000
7-Eleven
5.00%
5.25%
5.75%
6.00%
Advance Auto Parts
6.00%
6.50%
7.06%
7.72%
AutoZone
5.25%
5.75%
5.95%
6.50%
Bank of America (GL)
4.00%
4.49%
4.80%
5.25%
Chase (GL)
4.00%
4.40%
N/A
4.75%
CVS
5.00%
5.55%
5.75%
7.00%
DaVita
5.60%
7.00%
7.50%
8.00%
Dollar General
6.38%
7.68%
8.15%
9.00%
Family Dollar
7.00%
8.00%
8.38%
8.91%
FedEx
6.25%
6.50%
7.80%
9.46%
Fresenius
6.00%
7.20%
7.85%
9.75%
GSA
7.38%
7.77%
8.10%
8.90%
McDonald's (GL)
3.80%
4.18%
4.40%
4.75%
O'Reilly Auto Parts
5.63%
5.73%
6.40%
7.00%
PNC (GL)
4.00%
4.50%
4.80%
5.10%
Rite Aid
6.00%
6.44%
6.89%
8.33%
Walgreens
5.00%
5.50%
5.78%
7.28%
N/A
4.35%
4.80%
5.00%
Wells Fargo (GL)
FOR MORE INFORMATION AUTHOR John Feeney | Vice President john@bouldergroup.com
CONTRIBUTORS Randy Blankstein | President
Jimmy Goodman | Partner
Zach Wright | Analyst
randy@bouldergroup.com
jimmy@bouldergroup.com
zach@bouldergroup.com
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