Cap Rates Compress for Essential-Use Properties

Pricing has actually gotten more competitive for essential use retail properties. Properties that are both considered an essential use and are internet resistant have been especially popular among investors looking to place capital. This includes tenants like veterinary hospitals, pharmacies and grocery stores, all of which have performed well during the pandemic. Non-essential use properties have been taken off of the market while businesses remain closed, helping to prop up overall pricing and cap rates.

“COVID-19 has exaggerated both spectrums of the market. If you have a grocery store right now that does delivery, it is worth even more than it was pre-COVID,” Matthew Mousavi, managing principal with SRS’ national net lease group, tells GlobeSt.com. “Because buyers have limited alternatives, they need a place to put their money. Properties that are COVID-resistant, ecommerce-resistant and in a great location are selling at lower cap rates than before the recession. There are deals that have gotten more attractive due to COVID. In many ways, it is all a buyer can buy now. Buyers certainly want higher cap rates. That is just the market.”