THE NET LEASE MARKET REPORT Q3 2016 NATIONAL ASKING CAP RATES
MARKET OVERVIEW
Cap rates in the third quarter of 2016 for the single tenant net lease retail sector reached a new historic low rate of 6.10%. During the same period, cap rates for the office and industrial sectors decreased to 7.08% and 7.14% respectively. The overall net lease market remains active with 1031 and private investors due to the passive nature of the leases and attractiveness of relative investment returns when compared to other asset classes.
Q2 2016 (Previous)
Q3 2016 (Current)
Basis Point Change
Retail
6.18%
6.10%
-8
Office
7.25%
7.08%
-17
Industrial
7.26%
7.14%
-12
Sector
NUMBER OF PROPERTIES ON THE MARKET Sector
Q2 2016 (Previous)
Q3 2016 (Current)
Percentage Change
Retail
3,310
3,353
+1.3%
Office
395
408
+3.3%
Industrial
346
380
+9.8%
While newly constructed assets for certain tenants remain in high demand and limited supply, the dollar store tenants continue to expand and add an abundant supply of new construction to the market. The dollar store sector remains to be one of the sectors with increasing cap rates despite the current low cap rate environment due to their large supply on the market. However, these assets remain in demand with investors who have 1031 exchanges with small equity requirements due to their low price points and long term leases with creditworthy tenants.
MEDIAN NATIONAL ASKING VS CLOSED CAP RATE SPREAD
Q2 2016 (Previous)
Q3 2016 (Current)
Basis Point Change
Retail
26
26
0
Office
30
39
+9
Industrial
28
35
+7
Sector
The uncertainty of traditional investment asset classes coupled with the stable yields generated by the single tenant sector has created an abundance of investor demand for this sector. Despite a slight rise in the supply of net lease properties, there is a lack of new construction properties with long term leases. Accordingly, during the third quarter cap rates for recently constructed properties tenanted by McDonalds, DaVita and Advance Auto Parts compressed by 30, 25 and 15 basis points, respectively. This accounted for the greatest retail tenant compression as noted in the cap rates by year built chart.
The net lease market should remain active throughout the remainder of the year, with the expectation that cap rates should hold steady for the near term. The market will remain favorable to sellers as investors continue to seek this asset class due to the passive nature of the leases and institutional and fund investors attempt to reach fund allocations by years end.
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THE NET LEASE MARKET REPORT Q3 2016 SELECTED SINGLE TENANT SALES COMPARABLES Sale Date
Sector
Tenant
City
Price Per SF
Cap Rate
Lease Term Remaining
Aug-16
Industrial
Home Depot
Tolleson
AZ
$48,000,000
$103
5.25%
14
Aug-16
Industrial
Golden State Foods
Brookfield
IL
$39,500,000
$267
6.60%
16
State
Price
Sep-16
Industrial
Famous Footwear
Lebanon
TN
$32,800,000
$60
6.71%
15
Sep-16
Office
Citrix Systems
Fort Lauderdale
FL
$23,900,000
$200
8.30%
10
Sep-16
Retail
BJ's Wholesale Club
Maple Shade
NJ
$15,600,000
$142
7.13%
5
Aug-16
Office
US Bank
Milwaukee
WI
$14,000,000
$126
6.13%
10
Jul-16
Retail
CVS
Miami
FL
$12,500,000
$1,383
4.82%
25
Jul-16
Retail
LA Fitness
Glendale
AZ
$12,500,000
$271
6.21%
14
Jul-16
Retail
Walmart Neighborhood Market
Richmond
VA
$12,091,000
$294
5.40%
15
Jul-16
Retail
Academy Sports
Diberville
MS
$11,395,000
$181
6.39%
15
Aug-16
Retail
Fresh Thyme Farmers Market
Worthington
OH
$10,670,000
$377
6.91%
14
Aug-16
Retail
CVS
Phoenix
AZ
$10,466,000
$844
5.65%
19
Sep-16
Retail
Wawa (GL)
Marlton
NJ
$7,020,000
--
4.46%
19
Aug-16
Retail
Walgreens
Raleigh
NC
$6,894,000
$505
5.40%
20
Aug-16
Retail
Walgreens
Ruston
LA
$6,500,000
$446
6.13%
16
Aug-16
Retail
Natural Grocers
Aurora
CA
$6,479,000
$429
6.20%
15
Jul-16
Retail
Walgreens
Columbia
SC
$5,772,160
$381
7.40%
6
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
Q1 2014 Retail
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Q1 2015 Office
Q1 2016 Industrial
THE NET LEASE MARKET REPORT Q3 2016 MEDIAN ASKING CAP RATES BY YEAR BUILT Tenant
2011-2016
2006-2010
2000-2005
Pre 2000
7-Eleven
4.70%
5.25%
5.55%
6.25%
Advance Auto Parts
5.75%
6.75%
7.20%
7.60%
AutoZone
5.05%
5.60%
6.00%
N/A
Bank of America (GL)
4.40%
4.80%
5.15%
5.45%
Chase (GL)
4.30%
4.72%
4.90%
5.15%
CVS
5.00%
5.39%
5.85%
7.65%
DaVita
5.75%
6.43%
7.00%
8.15%
Dollar General
6.57%
7.51%
7.91%
8.61%
Family Dollar
6.40%
7.20%
7.85%
9.25%
FedEx
5.90%
6.50%
7.35%
N/A
Fresenius
5.70%
6.45%
7.15%
8.05%
GSA
6.10%
6.65%
N/A
N/A
McDonald's (GL)
3.75%
4.35%
4.90%
N/A
O'Reilly Auto Parts
5.50%
5.75%
5.95%
6.40%
Rite Aid
6.00%
6.90%
7.75%
8.70%
Walgreens
5.30%
5.85%
6.15%
6.75%
FOR MORE INFORMATION AUTHOR John Feeney | Vice President john@bouldergroup.com
CONTRIBUTORS Randy Blankstein | President
Jimmy Goodman | Partner
Asher Wenig | Vice President
Scott Harris | Analyst
randy@bouldergroup.com
jimmy@bouldergroup.com
asher@bouldergroup.com
scott@bouldergroup.com
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