In this 4th quarter single tenant net lease report, I will be discussing some positive signs heading into 2014 and what investors can expect. With the increasing demand at the end of the year for net lease retail, cap rates have been suppressed for the month of November. This have been the lowest level in the past decade in the fourth quarter. Research support that the net lease retail market cap rate is below 7.00% even though interest rates are up in 2013. Naturally, cap rates would increase as interest rates increased but this has not been the case.
Supply has been low and pose a huge factor this year even with cap rates down, this is driven by by real estate funds and institutional investors trying to meet their acquisition target goals for year end and this creates a frenzy every year. Another reason supply was down is the historically low financing rates allowing single tenant property owners to refinance and hold rather then to sell.
The highest demanded based on sales volume and premium over asking cap rates were CVS, Walgreens and 7-Eleven. The spread between closed and asking price for retail properties increased over 12 basis points.
Going into 2014, cap rates will increase due to the expectations of higher interest rates along with the combination of low interest financing and greater institutional acceptance. The national single tenant net lease market will remain hot and it will force investors to look in other areas for available opportunities for sale.
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Dwaine Clarke is a published author and founder of Clarke & Tinker Net Leased Property Group, a commercial real estate sales and advisory firm located in Connecticut. Connect with Dwaine on Twitter and Linkedin
