THE NET LEASE MARKET REPORT Q4 2016 NATIONAL ASKING CAP RATES
MARKET OVERVIEW
Cap rates in the fourth quarter of 2016 for the single tenant net lease sector increased or remained the same for all three asset classes. Retail cap rates experienced their first increase since the third quarter of 2013 to 6.19% cap rate. The 9 basis point increase is the largest increase in retail cap rates since the second quarter of 2011. Cap rates for the office sector remained unchanged at 7.08% while the industrial sector increased by 3 basis points to 7.17%.
Q3 2016 (Previous)
Q4 2016 (Current)
Basis Point Change
Retail
6.10%
6.19%
+9
Office
7.08%
7.08%
0
Industrial
7.14%
7.17%
+3
Sector
NUMBER OF PROPERTIES ON THE MARKET Sector
Q3 2016 (Previous)
Q4 2016 (Current)
Percentage Change
Retail
3,353
3,045
-9.2%
Office
408
384
-5.9%
Industrial
380
363
-4.2%
MEDIAN NATIONAL ASKING VS CLOSED CAP RATE SPREAD
Q3 2016 (Previous)
Q4 2016 (Current)
Basis Point Change
Retail
26
31
+5
Office
39
31
-8
Industrial
35
32
-3
Sector
The main contributing factor for the increase in cap rates for the retail sector can be attributed to the rise of treasury rates during the fourth quarter. During the fourth quarter, the 10 Year Treasury Yield increased significantly to 2.45; up from 1.62 at the start of the quarter. Net lease participants were careful to monitor the effect of the rising treasury rates for net lease valuations. During the fourth quarter, the spread between asking and closed cap rates for retail properties increased by 5 basis points. This was the largest spread between asking and closed cap rates for retail properties since the fourth quarter of 2013. The spread between asking and closed cap rates for all three sectors (retail, office and industrial) ranged between 31 and 32 basis points. The net lease market is expected to remain active in 2017 as investor demand for this asset class remains. The expectation is that there will likely be upward movement in cap rates moving forward. In a recent national survey conducted by The Boulder Group, the vast majority of active net lease participants expect cap rates to rise in 2017. The largest segment of net lease participants expect cap rates to increase between 25 and 49 basis points by the end of 2017. After the decision to increase rates at the December Federal Reserve meeting, investors will carefully monitor the capital markets and effect on pricing.
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THE NET LEASE MARKET REPORT Q4 2016 SELECTED SINGLE TENANT SALES COMPARABLES Sale Date
Sector
Tenant
City
Nov-16
Industrial
Amazon
Pataskala
Oct-16
Industrial
3M
Oct-16
Industrial
Oct-16
State
Price
Price Per SF
Cap Rate
Lease Term Remaining
OH
$88,900,000
$104
6.27%
15
Dekalb
IL
$69,356,000
$71
6.28%
10
FedEx
Buffalo
NY
$35,100,000
$104
6.57%
15
Retail
Mariano's
Chicago
IL
$34,464,645
$461
5.86%
20
Nov-16
Office
ABB
Wauwatosa
WI
$19,350,000
$213
6.75%
8
Nov-16
Retail
Sam's Club
Timonium
MD
$18,300,000
$137
6.00%
10
Nov-16
Office
LabCorp
Tampa
FL
$16,170,000
$171
6.14%
10
Oct-16
Retail
LA Fitness
Pawtucket
RI
$14,666,667
$326
6.75%
14
Oct-16
Retail
AMC Theatres
Normal
IL
$10,900,000
$244
7.18%
12
Oct-16
Retail
Walgreens
Chapel Hill
NC
$8,876,312
$592
5.10%
20
Nov-16
Retail
Academy Sports
Tuscaloosa
AL
$8,731,000
$116
6.65%
9
Oct-16
Office
BioLife
Riverton
UT
$7,564,000
$453
6.40%
14
Dec-16
Retail
Walgreens
Murrysville
PA
$7,500,000
$506
5.76%
20
Dec-16
Retail
Petsmart
Gurnee
IL
$6,590,053
$257
6.27%
10
Oct-16
Retail
Petco
Bloomingdale
IL
$5,345,000
$260
6.55%
12
NET LEASE CAP RATE TRENDS 8.75% 8.25% 7.75% 7.25% 6.75% 6.25% 5.75%
Q3 2004
Q3 2005
Q3 2006
Q3 2007
Q3 2008
Q3 2009
Q3 2010
Q3 2011
Q3 2012
Q3 2013 Retail
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Q3 2014 Office
Q3 2015
Q3 2016 Industrial
THE NET LEASE MARKET REPORT Q4 2016 MEDIAN ASKING CAP RATES BY YEAR BUILT
THE BOULDER GROUP CAP RATE POLL
Tenant
20112016
20052010
20002005
Pre 2000
7-Eleven
4.70%
5.20%
5.65%
6.30%
Advance Auto Parts
5.65%
6.65%
7.30%
8.00%
AutoZone
5.00%
5.40%
5.25%
N/A
Bank of America
4.40%
4.90%
5.00%
5.50%
Chase Bank
4.35%
4.75%
5.00%
5.25%
CVS Pharmacy
5.00%
5.50%
6.05%
7.50%
DaVita Dialysis Center
5.75%
6.50%
7.00%
8.05%
Dollar General
6.65%
7.15%
8.00%
9.39%
Family Dollar
6.80%
7.25%
8.00%
9.23%
FedEx
6.00%
6.60%
7.40%
7.75%
Fresenius
5.70%
6.40%
7.10%
8.05%
McDonald's (GL)
3.90%
4.40%
5.00%
N/A
O'Reilly Auto Parts
5.45%
5.80%
6.00%
6.50%
Rite Aid
6.05%
7.00%
7.80%
8.50%
Starbucks
4.90%
5.25%
6.15%
7.00%
Walgreens
5.40%
5.95%
6.25%
7.05%
WHERE DO YOU EXPECT CAP RATES TO MOVE BY THE END OF 2017 Cap rates will move up 50 bps or more
(18%)
Cap rates will move up 25 bps to 49 bps
(44%)
Cap rates will move up 1 bps to 24 bps
(28%)
Cap rates will remain unchanged
(5%)
Cap rates will move down
(5%)
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
Š 2017. 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.
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