Cap rates in the single-tenant net lease sector continued to rise in the fourth quarter of 2024 for
the 11th consecutive quarter of increases across all three sectors, The Boulder Group reported. Single-tenant cap rates increased to 6.52% (up two basis points) for retail, 7.78% (up three bps) for office and 7.23% (up eight bps) for industrial.

“Sustained high interest rates and commentary from the Federal Reserve following the December meeting
continues to negatively impact the market,” said Randy Blankstein, president, The Boulder Group. “Overall cap rates rose to 6.76%, representing a three-bp increase from the previous quarter.”

Transaction velocity in 2024 remained significantly below the peak of 2021, yet Q4 experienced an uptick of investor activity. The spread between asking and closed cap rates remained flat or decreased for net lease properties.

“The bid-ask spread compression indicates a gradual alignment between buyer and seller expectations, something that was not experienced in early 2024,” said Boulder Group partner Jimmy Goodman. If transaction velocity continues, the supply backlog of net leased assets will decrease, the report stated.

Cap rates in the single-tenant net lease sector increased for the eighth consecutive quarter within all three major sectors in the first quarter of 2024, the Boulder Group reported. Single-tenant cap rates increased to 6.42% (up seven basis points) for retail, 7.60% (up five bps) for office and 7.02% (up two bps) for industrial.

“Cap rates in the first quarter of 2024 represented the highest levels since 2014 for single-tenant retail properties,” said Randy Blankstein, president, The Boulder Group. “However, cap rates for single-tenant retail and industrial assets remain lower than their 20-year historical average by approximately 40 basis points.”

Added Boulder Group partner Jimmy Goodman, “Elevated interest rates continue to impact transaction volume which is lower than prior years. A lack of 1031 exchange buyer activity is resulting in an increased supply of net lease properties on the market.”

Single-tenant property supply increased by more than 9% over Q4 2023 levels. With limited transactions occurring, properties continue to be added to, and stay on, the market. Despite the headwinds in the market, certain sellers including merchant builders or owners with upcoming loan maturities look to meet market pricing, according to The Boulder Group.