Cap rates for retail properties remained unchanged at 6.5% in Q3 2014, while office cap rates compressed by 37 basis points to 7.4% and industrial rates rose slightly to 8%. The supply of office and industrial properties for sale increased by 30% and 21% respectively, as owners sought to capitalize on strong demand for net lease assets. Demand for net lease properties is expected to continue as investors are attracted to the stable cash flows, though some may wait to see how the dollar store sector consolidates in light of the potential Family Dollar acquisition.

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THE NET LEASE MARKET REPORT
Q3 2014
Sector Q2 2014 Q3 2014 Basis Point
(Previous) (Current) Change
Retail 6.50% 6.50% 0
Office 7.77% 7.40% -37
Industrial 7.97% 8.00% +3
Sector Q2 2014 Q3 2014 Percent
(Previous) (Current) Change
Retail 3,058 3,153 3.1%
Office 304 395 29.9%
Industrial 210 254 21.0%
MARKET OVERVIEW
Cap rates in the third quarter of 2014 for the single tenant net
leased retail sector remained unchanged at their historic low rate
of 6.50% from the second quarter. Cap rates for the office sector
compressed by 37 basis points to 7.40% while cap rates in the
industrial sector rose minimally by three basis points to 8.00%.
There were no major contributing factors to the leveling of retail
cap rates as supply and demand remained near levels from the
previous quarter. During the third quarter, the Ten Year Treasury
yield dropped to its lowest point of the year (2.55) in late August.
However, by the end of the quarter, treasury rates rose and ended
near levels similar to the end of the second quarter. With little
movement in the capital markets, retail cap rates have plateaued
as buyers cannot meet acceptable return thresholds at lower cap
rates due to the low interest rate environment.
During the third quarter, the supply of office and industrial
properties increased significantly by 30% and 21% respectively.
Owners of these assets have attempted to take advantage of
the current low retail cap rates by enticing investors with higher
yields offered by office and industrial properties. The supply of
retail properties increased by only 3.1% from the second quarter
to the third quarter as new construction remains limited with the
exception of the dollar store sector.
Dollar store retailers, inversely to other retailers, have been
expanding at an aggressive rate over the course of the past two
years by adding over 2,000 locations during that time. However,
with the most recent news regarding the potential Family Dollar
acquisition, many investors have decided to wait and see how the
situation plays out.
Demand throughout the net lease market will continue as
investors remain attracted to the stable cash flows this asset
class generates. While some investors wait on the sidelines as
the changing dollar store sector takes shape, investor demand
for other new construction properties in the $1-3 million dollar
range (quick service restaurants, casual dining restaurants and
auto part stores) will grow. With steady capital markets, market
participant expectations are for cap rates to hold steady or rise
slightly by the end of the year.
Sector Q2 2014 Q3 2014 Basis Point
(Previous) (Current) Change
Retail 18 22 +4
Office 51 31 -20
Industrial 35 62 +27
NATIONAL ASKING CAP RATES
NUMBER OF PROPERTIES ON MARKET
MEDIAN NATIONAL ASKING VS.
CLOSED CAP RATE SPREAD

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THE NET LEASE MARKET REPORT
Q3 2014
SELECTED SINGLE TENANT SALES COMPARABLES
Sale
Date Sector Tenant City State Price
Price
Per SF
Cap
Rate
Lease Term
Remaining
Jul-14 Industrial Nissan Murfreesboro TN $25,837,500 $56 6.40% 15
Jul-14 Retail Lowe's Shippensburg PA $24,400,000 $143 6.05% 18
Jul-14 Retail BJ's Wholesale Jacksonville FL $18,300,000 $150 6.87% 12
Sep-14 Retail Walgreens Chicago IL $16,600,000 $1,034 5.25% 22
Jul-14 Retail Price Chopper Worcester MA $16,000,000 $232 7.39% 14
Sep-14 Retail Pick N Save Kenosha WI $9,250,000 163 6.78% 13
Aug-14 Retail Kohl's Sherwood OR $7,490,000 $129 5.70% 19
Aug-14 Retail McDonald's (Ground Lease) Arlington VA $7,350,000 N/A 3.95% 12
Jul-14 Retail Bank of America Chicago IL $7,150,000 $1,788 6.15% 12
Jul-14 Retail Chase Bank (Ground Lease) Lombard IL $6,500,000 N/A 5.00% 18
Jul-14 Retail CVS Riverton NJ $6,080,000 $471 6.20% 18
Jul-14 Retail Walgreens Raytown MO $5,862,250 $404 6.00% 15
Jul-14 Office Shearer's Corporation Massillon OH $5,600,000 $140 8.39% 15
NET LEASED CAP RATE TRENDS
Retail Office Industrial
6.25%
6.75%
7.25%
7.75%
8.25%
8.75%
Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014

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THE NET LEASE MARKET REPORT
Q3 2014
Tenant 2010-2014 2005-2009 2000-2004 Pre 2000
Walgreens 5.30% 5.60% 6.00% 7.25%
CVS 5.25% 5.63% 6.13% 7.04%
Rite Aid N/A 6.75% 7.63% 8.00%
Advance Auto Parts 6.00% 6.83% 7.25% 7.75%
AutoZone 5.40% 6.45% 6.75% 7.53%
O'Reilly Auto Parts 5.86% 6.17% 6.35% 7.00%
Dollar General 6.45% 7.25% 7.90% 8.65%
Family Dollar 6.75% 7.40% 8.15% 8.75%
McDonald's (GL) 4.00% 4.19% 4.60% 5.00%
FedEx 6.58% 7.00% 8.00% 8.45%
GSA 7.64% 7.55% 8.38% 9.10%
Chase (GL) 4.00% 4.35% 4.63% N/A
Bank of America (GL) 4.25% 4.88% 5.00% 5.10%
PNC (GL) 4.33% 4.88% 5.25% N/A
Wells Fargo (GL) 4.15% 4.65% 4.85% 5.25%
7-Eleven 5.13% 5.50% 6.05% 6.25%
DaVita 6.43% 6.84% 7.15% 8.00%
Fresenius 6.25% 6.90% 7.85% 8.00%
FOR MORE INFORMATION
AUTHOR
John Feeney | Vice President
john@bouldergroup.com
CONTRIBUTORS
Randy Blankstein | President
randy@bouldergroup.com
Jimmy Goodman | Partner
jimmy@bouldergroup.com
Zach Wright | Research Analyst
zach@bouldergroup.com
© 2014. 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
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MEDIAN ASKING CAP RATES BY YEAR BUILT
GL = Ground Lease
Jordan Kaufman | Vice President
jordan@bouldergroup.com