Analysts say that in spite of deal flow slowing and properties remaining on the market for longer periods of time, the market supply of net lease assets increased in the fourth quarter. In the first quarter of 2022, cap rates for retail, office, and industrial properties were all close to historic lows. However, when borrowing costs rose throughout the year, retail and office cap rates soared. Office cap rates increased by 25 basis points from Q1 to Q4, while single-tenant retail cap rates increased by 20 basis points. According to industry analyst findings, the spread between industrial cap rates only increased by 5 basis points.In the fourth quarter, the supply of net-leased properties grew by over 10%. Cap rates on recently built facilities leased to Dollar General increased by 40 basis points over the previous quarter. Additionally, 7-Eleven (+25 bps), DaVita Dialysis (+25 bps), and Starbucks (+15 bps) also saw cap rate growth.
According to analysts, based on 2022 Q4 results, transaction volume for the net lease sector will continue to lag behind the robust transaction levels of 2021 as increased borrowing costs and a diminishing number of 1031 exchange investors limits transactions. Net lease investors will closely follow the Federal Reserve’s future meetings since its monetary policies will continue to affect the market.
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