THE NET LEASE MARKET REPORT Q2 2016 NATIONAL ASKING CAP RATES
MARKET OVERVIEW
Cap rates in the first quarter of 2016 for the single tenant net lease retail sector remained unchanged at their historic low rate of 6.18%. During the same timeframe, cap rates for the office and industrial sectors increased to 7.25% and 7.26% respectively. While cap rates remained stable in the second quarter, an influx of net lease assets entered the market this quarter increasing the total supply by approximately 11%.
Q1 2016 (Previous)
Q2 2016 (Current)
Basis Point Change
Retail
6.18%
6.18%
0
Office
7.20%
7.25%
+5
Industrial
7.10%
7.26%
+16
Sector
NUMBER OF PROPERTIES ON THE MARKET Sector
Q1 2016 (Previous)
Q2 2016 (Current)
Percentage Change
Retail
3,029
3,310
+9.3%
Office
311
395
+27.0%
Industrial
294
346
+17.7%
MEDIAN NATIONAL ASKING VS CLOSED CAP RATE SPREAD
Q1 2016 (Previous)
Q2 2016 (Current)
Basis Point Change
Retail
24
26
+2
Office
21
30
+9
Industrial
37
28
-9
Sector
Cap rates for all major sectors remained unchanged or increased in the second quarter. While the strong demand from 1031 and private buyers kept retail cap rates firm, the volatility of the capital markets were a contributing factor to the cap rate increases for the office and industrial sectors. Historically, institutional capital is the traditional buyer for single tenant office and industrial assets; however, institutional investors are more sensitive to the volatility of the financing markets in 2016 and have adjusted cap rates accordingly. Throughout the course of the second quarter the 10 Year Treasury Yield ranged from as high as 1.94 and as low as 1.45. Despite cap rate stability in the second quarter of 2016, the spread between asking and closed pricing increased for retail and office properties by 2 and 9 basis points respectively. Owners of net lease product have attempted to take advantage of the low cap rate environment over the course of 2016 with aggressive pricing. The widening of the spread between asking and closed cap rates illustrates the cap rate pushback from buyers on the aggressively priced assets. As a result, the marketing time for single tenant properties has lengthened by approximately 11% when compared to the prior quarter. The net lease market is expected to remain active in 2016 investors continue to seek safe and stable returns. The majority of net lease participants expect cap rates to hold steady for the near term; however the perception is that there is upward pressure on cap rates. With the recent events in Europe and the subsequent drop in the 10 year treasury, it is expected that volatility will increase for the near term.
www.bouldergroup.com
THE NET LEASE MARKET REPORT Q2 2016 SELECTED SINGLE TENANT SALES COMPARABLES Sale Date
Sector
Tenant
City
Price Per SF
Cap Rate
Lease Term Remaining
Apr-16
Industrial
FedEx
Louisville
KY
$41,893,000
$138
5.91%
15
May-16
Industrial
FedEx
Mabelvale
AR
$31,715,000
$102
6.79%
10
May-16
Industrial
Jo-Ann Stores
May-16
Industrial
PPG Industries
Visalia
CA
$27,921,000
$44
6.74%
10
Aurora
IL
$27,700,000
$91
5.40%
12
May-16
Retail
Mariano's
Elmhurst
IL
$25,000,000
$329
5.90%
17
May-16
Retail
CarMax
Nashville
TN
$24,500,000
$445
7.10%
8
Jun-16
Retail
Home Depot
Henderson
NV
$23,162,000
$226
6.04%
12
May-16
Retail
CVS
Watertown
MA
$15,800,000
$1,098
5.07%
25
Apr-16
Retail
Home Depot
Seabrook
NH
$15,047,000
$110
5.25%
15
May-16
Retail
Walmart Neighborhood Market
Mufreesboro
TN
$14,859,000
$345
5.17%
15
May-16
Retail
BJ's Wholesale Club
Easton
MD
$12,905,000
$205
6.35%
20
Jun-16
Retail
Walgreens
Towson
MD
$12,100,000
$979
5.66%
21
May-16
Retail
Walgreens
Chicago
IL
$11,275,000
$867
5.28%
15
Jun-16
Retail
Kohl's
Holland
MI
$7,875,000
$94
7.00%
10
May-16
Retail
Bank of America (GL)
Glenview
IL
$6,900,000
--
4.78%
13
Apr-16
Retail
Citibank
Park Ridge
IL
$5,126,000
$1,336
5.00%
10
Jun-16
Retail
Walgreens
Stockbridge
GA
$5,020,000
$332
7.17%
5
State
Price
NET LEASE CAP RATE TRENDS 8.65% 8.15% 7.65% 7.15% 6.65% 6.15% Q1 2008
Q1 2009
Q1 2010
Q1 2011
Q1 2012
Q1 2013 Retail
www.bouldergroup.com
Q1 2014
Q1 2015
Office
Q1 2016
Industrial
THE NET LEASE MARKET REPORT Q2 2016 MEDIAN ASKING CAP RATES BY YEAR BUILT Tenant
2011-2016
2006-2010
2000-2005
Pre 2000
7-Eleven
4.75%
5.50%
5.75%
6.65%
Advance Auto Parts
5.90%
6.75%
7.00%
7.50%
AutoZone
5.00%
5.50%
6.10%
N/A
Bank of America (GL)
4.20%
4.85%
5.10%
5.35%
Chase (GL)
4.35%
4.65%
4.90%
5.20%
CVS
5.00%
5.56%
6.25%
7.75%
DaVita
5.50%
6.63%
6.90%
8.25%
Dollar General
6.50%
7.38%
8.25%
9.09%
Family Dollar
6.28%
7.28%
8.00%
8.85%
FedEx
5.90%
6.65%
7.50%
9.85%
Fresenius
5.63%
6.65%
7.35%
8.20%
GSA
6.15%
6.70%
8.77%
N/A
McDonald's (GL)
4.05%
4.30%
4.70%
4.75%
O'Reilly Auto Parts
5.58%
6.00%
N/A
6.71%
PNC (GL)
4.60%
4.75%
5.01%
N/A
Rite Aid
6.00%
6.68%
7.50%
8.50%
Walgreens
5.20%
5.80%
6.00%
6.28%
FOR MORE INFORMATION AUTHOR John Feeney | Vice President john@bouldergroup.com
CONTRIBUTORS Randy Blankstein | President
Jimmy Goodman | Partner
Scott Harris | Analyst
randy@bouldergroup.com
jimmy@bouldergroup.com
scott@bouldergroup.com
Š 2016. 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.
www.bouldergroup.com