THE NET LEASE

MARKET REPORT
Q1 2015
NATIONAL ASKING CAP RATES

MARKET OVERVIEW

Cap rates in the first quarter of 2015 for the single tenant net lease
retail sector reached a new historic low of 6.40%. After holding steady
for three straight quarters, cap rates for net lease retail properties
declined by 10 basis points. During this period, cap rates for the
net lease industrial sector compressed by 33 basis points to 7.70%,
while net lease office cap rates rose slightly to 7.35%. Retail assets
continue to command the lowest cap rates in the net lease sector due
to private and 1031 investors demand for this asset class. Private
and 1031 investors prefer retail over office and industrial due to their
familiarity with the tenants, typical long initial lease terms, passive
triple net lease structures and lower price points. Industrial assets
have gained favor among investors recently as illustrated by the
33 basis point cap rate decline in the first quarter. Investors have
a renewed faith in the industrial segment as the industrial market
continues to show positive absorption, escalating rental rates and an
increase in construction nationwide.

Q4 2014
(Previous)

Q1 2015
(Current)

Basis Point
Change

Retail

6.50%

6.40%

-10

Office

7.31%

7.35%

+4

Industrial

8.03%

7.70%

-33

Sector

NUMBER OF PROPERTIES
ON THE MARKET

Sector

Q4 2014
(Previous)

Q1 2015
(Current)

Percentage
Change

Retail

2,964

2742

-7.5%

Office

300

312

+4.0%

Industrial

292

307

+5.1%

MEDIAN NATIONAL ASKING VS

CLOSED CAP RATE SPREAD

Q4 2014
(Previous)

Q1 2015
(Current)

Basis Point
Change

Retail

21

19

-2

Office

29

35

+6

Industrial

45

39

-6

Sector

Retail assets remain at the forefront of investor demand in the net

lease sector. The 1031 exchange investor will continue to dominate
the net lease market as they can pay a premium over institutions
due to their tax consequences and lower personal return thresholds.
Additionally, as apartment owners take advantage of record pricing in
the multifamily sector, new net lease investors have emerged. Retirees
looking to leave the management intensive nature of multifamily have
become increasingly more active in the net lease sector due to the
passive nature of these investments. The increasing pool of capital
from first-time net lease investors has created strong competition
amongst buyers for net lease assets leading to the decrease in cap
rates seen in the retail and industrial sectors.
As limited opportunities exist for long term leased properties to
investment grade tenants when compared to the investor demand,
these assets are commanding the highest prices. Recently constructed
Walgreens, CVS and Family Dollar properties experienced cap rate
compression of 25, 12 and 25 basis points respectively in the first
quarter.
The net lease market should remain active throughout 2015 as equity
continues to enter the commercial real estate sector. Investors will be
carefully monitoring the capital markets for potential rises in interest
rates and subsequent softening in asset pricing. Sellers will continue
to aggressively price assets in attempt to achieve favorable cap rates
in sale transactions; however the expectation is that cap rates should
remain relatively stable in the upcoming quarters.

www.bouldergroup.com

THE NET LEASE

MARKET REPORT
Q1 2015
SELECTED SINGLE TENANT SALES COMPARABLES
Sale
Date

Sector

Tenant

City

Feb-15

Retail

BJ's Wholesale

Jan-15

Medical Office

Jan-15

Price
Per SF

Cap
Rate

Lease Term
Remaining

$141

6.83%

12

$16,529,439

$390

6.64%

CA

$16,000,000

$1,162

5.13%

21

IL

$12,700,000

$146

5.78%

10

Jacksonville

NC

$7,900,000

$143

6.54%

15

TD Bank

Jamaica

NY

$7,500,000

$1,304

4.84%

10

Retail

Walgreens

Greeley

CO

$7,125,000

$483

5.54%

15

Mar-15

Retail

Chipotle

Brooklyn

NY

$5,700,000

$1,274

5.26%

14

Feb-15

Retail

CVS

Weeki Wachee

FL

$5,100,000

$467

5.20%

25

Jan-15

Retail

Tractor Supply

Harrisburg

PA

$4,926,075

$227

6.24%

11

Jan-15

Industrial

HVAC Supply, Inc.

Denver

CO

$4,575,000

$78

6.73%

14

Feb-15

Retail

Walgreens

Milford

OH

$4,550,000

$312

6.18%

14

Jan-15

Industrial

Structus Building Technologies

Bend

OR

$4,500,000

$87

6.67%

Feb-15

Retail

Bank of America

Staten Island

NY

$4,100,000

$1,108

5.10%

20

State

Price

Tampa

FL

$16,900,000

Healthsouth

Fredericksburg

VA

Retail

Walgreens

Huntington Beach

Mar-15

Retail

Kohl's

Round Lake Beach

Jan-15

Retail

Hobby Lobby

Feb-15

Retail

Jan-15

NET LEASE CAP RATE TRENDS

8.75%
8.25%
7.75%
7.25%
6.75%
6.25%
Q1 2007

Q1 2008

Q1 2009

Q1 2010

Q1 2011

Q1 2012

Q1 2013

Q1 2014
Retail

Office

Q1 2015
Industrial

www.bouldergroup.com

THE NET LEASE

MARKET REPORT
Q1 2015
MEDIAN ASKING CAP RATES BY YEAR BUILT
Tenant

2011-2015

2006-2010

2000-2005

Pre 2000

7-Eleven

5.00%

5.25%

5.70%

6.10%

Advance Auto Parts

6.00%

6.50%

7.15%

7.75%

AutoZone

5.00%

5.26%

6.00%

6.35%

Bank of America (GL)

4.00%

4.74%

4.95%

5.90%

Chase (GL)

4.00%

4.35%

4.70%

4.70%

CVS

5.13%

5.60%

5.80%

6.90%

DaVita

5.80%

7.00%

7.65%

8.00%

Dollar General

6.50%

7.45%

7.95%

9.50%

Family Dollar

7.00%

7.75%

8.00%

9.61%

FedEx

6.25%

6.50%

8.00%

9.36%

Fresenius

6.00%

7.01%

7.72%

9.75%

GSA

7.40%

7.76%

8.40%

9.40%

McDonald's (GL)

3.80%

4.20%

4.48%

4.88%

O'Reilly Auto Parts

5.75%

5.93%

6.50%

7.00%

PNC (GL)

4.30%

N/A

5.80%

6.20%

Rite Aid

6.00%

6.60%

7.00%

8.13%

Walgreens

5.00%

5.50%

5.85%

7.25%

N/A

4.40%

4.85%

5.00%

Wells Fargo (GL)

FOR MORE INFORMATION

AUTHOR
John Feeney | Vice President
john@bouldergroup.com

CONTRIBUTORS
Randy Blankstein | President

Jimmy Goodman | Partner

Zach Wright | Research Analyst

randy@bouldergroup.com

jimmy@bouldergroup.com

zach@bouldergroup.com

2015. The Boulder Group. Information herein has been obtained from databases owned and maintained by The Boulder Group as well as third party sources. We have not verified the information
and we make no guarantee, warranty or representation about it. This information is provided for general illustrative purposes and not for any specific recommendation or purpose nor under any
circumstances shall any of the above information be deemed legal advice or counsel. Reliance on this information is at the risk of the reader and The Boulder Group expressly disclaims any liability
arising from the use of such information. This information is designed exclusively for use by The Boulder Group clients and cannot be reproduced, retransmitted or distributed without the express
written consent of The Boulder Group.

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