Interest in the net-lease retail segment remains elevated, thanks to strong supply and demand fundamentals…and the fact that investors are hard-pressed to get good returns in other areas.

Strong investor interest has pushed cap rates in this niche down on a national basis, from north of 8% in the fourth quarter of 2010 to 7.5% in Q3 2012, reports the Boulder Group.

Randy Blankstein, president of the Northbrook, IL-based net-lease advisory firm, says, “Demand is the strongest it’s ever been, driven primarily by low interest rates and the stability that the sector offers for predictable cash flow and safety.”

And Jonathan Hipp, president and CEO of Reston, VA-based Calkain Cos., notes, “There continues to be a flight to quality, where the most aggressive cap rates are seen.”

Further boosting the net-lease retail niche is a limited availability of new supply, thanks to a dearth of new construction. Also, some property owners are choosing to refinance in today’s favorable interest-rate environment, rather than sell properties, according to Blankstein. Between Q2 and Q3 of this year, the supply of net lease retail properties available for sale was down more than 7%, Boulder reports, and what properties were put on the market spent about 20% less time on the block during the past year.

Yet investors don’t view all properties equally. “The most popular tenants tend to be the name-brand, investment-grade companies. If you are a large regional or national player that is a financially strong, investment-grade company, that should draw a lot of attention,” says Christopher Volk, president and CEO of Scottsdale-based Store Capital…


…For the rest of the story, go to the November 2012 issue of Real Estate Forum online.