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Net Lease Research Report

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Net Lease Research Report

  1. 1. www.bouldergroup.com THE NET LEASE MARKET REPORT Q3 2013 Sector Q2 2013 Q3 2013 Basis Point (Previous) (Current) Change Retail 7.00% 7.02% +2 Office 7.54% 7.70% +16 Industrial 8.00% 8.00% 0 Sector Q2 2013 Q3 2013 Percent (Previous) (Current) Change Retail 2,760 2,502 -9.3% Office 258 232 -10.1% Industrial 204 234 +14.7% MARKET OVERVIEW Cap rates for single tenant retail and office properties experienced moderate increases for the first time in nearly two years in the third quarter of 2013. Cap rates in the industrial sector remained unchanged. The modest rise in cap rates, for retail and office sectors, is primarily due to the increase in interest rates correlated to the 10.4% 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. Properties priced below $8 million are in the highest demand amongst 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%. 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. Retailers plan to focus on same store growth rather than expansion, causing the development pipeline for new construction single tenant assets continues to be limited. Additionally, the limited supply of core market assets has caused cap rates for these assets to remain at last quarter’s level or even decline slightly in some cases. Retail properties remain in the highest demand as evidenced by the premium over office and industrial properties of 68 and 98 basis points respectively. The competition amongst investors for this asset type can best be illustrated by the spread between the asking and closed cap rates, which compressed further in the third quarter for retail properties. It is expected that there will be a limited movement in valuation in the fourth quarter of 2013 as there is a substantial investor pool seeking a limited supply of net lease assets. Transaction volume in the fourth quarter is expected to remain at similar levels to 2011 and 2012, as institutions are anxious to allocate recently raised dollars from their significant fundraising year. Sector Q2 2013 Q3 2013 Basis Point (Previous) (Current) Change Retail 25 22 -3 Office 66 50 -16 Industrial 53 48 -5 NATIONAL ASKING CAP RATES NUMBER OF PROPERTIES ADDED TO MARKET IN Q2 MEDIAN NATIONAL ASKING VS. CLOSED CAP RATE SPREAD
  2. 2. www.bouldergroup.com THE NET LEASE MARKET REPORT Q3 2013 SELECTED SINGLE TENANT SALES COMPARABLES Sale Date Sector Tenant City State Price Price Per SF Cap Rate Lease Term Remaining Jul-13 Industrial Amazon Murfreesboro TN $69,050,000 $68 5.08% 14 Jul-13 Retail CarMax Stockbridge GA $12,881,500 $243 7.00% 20 Jul-13 Retail Walgreens Burbank IL $8,681,500 $586 5.75% 25 Jul-13 Retail Rite Aid Renton WA $6,647,000 $408 8.40% 13 Aug-13 Retail Walgreens Glen Burnie MD $6,486,000 $475 5.82% 17 Jul-13 Industrial FedEx South Point OH $6,424,000 $85 7.19% 10 Jul-13 Retail CVS Oak Forest IL $6,305,000 $450 6.15% 22 Jul-13 Retail TD Bank (GL) Miami FL $5,850,000 -- 5.13% 19 Jul-13 Retail Walgreens Indianapolis IN $5,700,000 $385 6.14% 15 Aug-13 Retail Rite Aid Kingston WA $5,615,000 $325 7.80% 15 NET LEASED CAP RATE TRENDS 8.75% 7.75% 6.75% 7.25% 8.25% Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Retail Office Industrial Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013
  3. 3. www.bouldergroup.com THE NET LEASE MARKET REPORT Q3 2013 Tenant 2010-2013 2005-2009 2000-2004 Pre 2000 Walgreens 5.58% 5.80% 6.50% 7.50% CVS 5.65% 6.03% 6.75% 7.25% Rite Aid N/A 8.10% 9.00% 9.15% Advance Auto Parts 6.75% 6.90% 7.50% 8.80% AutoZone 5.75% 5.95% 6.00% N/A O’Reilly Auto Parts 6.25% 6.48% 7.00% 8.50% Dollar General 6.50% 8.00% 8.63% 8.88% Family Dollar 7.53% 8.50% 8.60% 9.90% McDonald’s (GL) 4.10% 4.23% 4.43% 5.06% FedEx 6.40% 7.50% 7.79% 8.75% GSA 7.08% 7.13% 7.95% 10.25% Chase (GL) 4.90% 5.00% N/A N/A Bank of America (GL) 4.75% 5.63% 5.75% N/A Wells Fargo (GL) 4.88% 5.00% 5.25% 6.25% 7-Eleven 5.50% 5.80% 6.00% 6.58% DaVita 6.25% 6.75% 7.40% N/A Fresenius 6.37% 7.15% 8.20% N/A MEDIAN ASKING CAP RATES BY YEAR BUILT FOR MORE INFORMATION AUTHOR John Feeney | Research Director john@bouldergroup.com CONTRIBUTORS Randy Blankstein | President rblank@bouldergroup.com Jimmy Goodman | Partner jimmy@bouldergroup.com Zach Wright | Research Analyst zach@bouldergroup.com © 2013. 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. GL = Ground Lease

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