Retail Cap Rates Reach Another Historic Low

Much of the new construction seen in the market comes from the dollar store sector. And that large and increasing supply means it is one of the few sectors with increasing cap rates despite the current low cap rate environment.

CHICAGO—Strong demand from 1031 and private investors pushed cap rates for the single tenant net lease retail sector down slightly to just 6.1%, another historic low, in the third quarter of 2016, according to a new report from the Boulder Group, a net lease investment firm in suburban Chicago. During the same period, cap rates for the office and industrial sectors decreased to 7.08% and 7.14% respectively, declines of 17 and 12 bps. Retail cap rates have stayed below 6.65% since early 2015.

“The uncertainty of traditional investment asset classes coupled with the stable yields generated by the single tenant sector has created an abundance of investor demand for this sector,” Boulder says. The number of retail properties on the market increased slightly, from 3,310 to 3,353, but there remains a lack of new construction properties with long term leases.