Single-Tenant Cap Rates Increase, by the Boulder Group

File Type: Free Content, Article
Release Date: October 2013
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Office and retail properties leased to single tenants posted moderate cap rate increases for the first time in nearly two years in the third quarter of 2013, according to latest edition of “The Net Lease Market Report,” published by the Boulder Group.

Cap rates in the industrial sector were unchanged. The small rise for retail and office sector cap rates was due primarily to the increase in interest rates correlated with the 10.4 percent increase in the 10-Year Treasury yield from July to August. “Retail and office properties experienced a slight rise in cap rates; however, cap rates for net leased properties valued below $8 million have not experienced the same cap rate impact,” the Boulder Group reports. “Properties priced below $8 million are in the highest demand among individual investors. Individual investors are more likely to pay lower cap rates than an institutional investor as they do not have to meet the same return hurdles and frequently utilize 1031 Exchanges. Additionally, institutional investors are typically more sensitive to interest rates and make real time adjustments to changes in the capital markets.

“While the 10-Year Treasury yield continued to increase in the third quarter, the supply of net leased retail and office properties decreased by over 9 percent. Net lease participants were expecting cap rates to be impacted more than the moderate increase in the third quarter due to the uptick in interest rates. However, downward pressure applied on cap rates by limited supply in the market kept cap rates from being impacted more significantly.”