There is a constrained supply of net lease properties on the market – continuing the trend of record low cap rates. Pharmacies are trading at even lower rates than net leases on average. High credit tenants such as Walgreens and CVS are in the highest demand – with many investors willing to pay premiums for corporate guarantees and long leases.

Though there has been some talk of increasing interest rates forcing cap rates upward – these interest rate increases have already been absorbed. This is because even though interest rates may be rising – they still remain at historic lows compared to the previous market high in 2006. During that boom, investors were commonly dealing with interest rate vs cap rate spreads of 60 bps. Today – even with the interest rate increases – that spread stands at 200-250 bps. As a result, it still makes sense for transactions to trade at these seemingly bold low rates.

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