Supply of product in the single-tenant net lease sector has “skyrocketed” quarter-over-quarter, with an increase of 138.9% more properties on-market as of Q4, according to B+E Net Lease.

And in response, “sellers are rushing to the market in hopes of capturing the wave of record-low cap rates,” the firm’s analysts say. Meanwhile, cap rates have stagnated for the first time in the last trailing two years.

As a result, many buyers have been pushed to the sidelines: according to CoStar data, buyers in the first half of the year consisted of 51% private levered buyers and 33% institutional cash buyers. Since then, that has shifted to 35% private buyers and 50% institutional buyers. But B+E predicts a “strong finish to Q4, as the supply will be consumed by all-cash investors looking to deploy the rest of the capital they’ve raised prior to the start of the new year,” the firm’s analysts note.

As of Q4, B+E tracked 3,905 properties on the market, with an average cap rate of 5.32%, consistent with last quarter but below the first half of the year. Meanwhile, interest rates clocked in at 3.08% on the first day of Q4, a significant increase from 0.08% in Q1.

The greatest uptick in supply of retail properties on market were for car washes (+106%), QSR (+61%) and convenience stores (+56%). Industrial warehouses also saw a 175% uptick in supply quarter-to-quarter.

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Lynn Pollack

 

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