Cap Rates for Auto Parts Sink Low

CHICAGO—The cap rates for many single tenant net leased properties have sunk to historic lows over the past year. And in some of these sectors, the rates have kept going lower as investors show more interest, and the number of stores on the market decreases. According to a new report by the Boulder Group, for example, rates in the auto parts store sector compressed from the fourth quarter of 2012 to the fourth quarter of 2013 by 31 bps.

“The auto parts sector, for the purpose of this report, is defined as Advance Auto Parts, AutoZone and O’Reilly Auto Parts as they account for the highest percentage of transactions within the auto parts sector,” the report notes. A limited supply of investment grade assets has helped push the rates down. Even though the sector saw about 500 new store openings in 2013, the supply actually available on the net lease market decreased by 5%, mostly because the big companies own an increasingly higher percentage of their locations.