single tenant net lease research report

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THE NET LEASE MARKET REPORT

Q4 2013

Sector Q3 2013 Q4 2013 Basis Point

(Previous) (Current) Change

Retail 7.02% 6.85% -17Office 7.70% 7.40% -30

Industrial 8.00% 8.15% +15

Sector Q3 2013 Q4 2013 Percent

(Previous) (Current) Change

Retail 2,502 2,184 -12.7%

Office 232 246 +6.0%

Industrial 234 189 -19.2%

MARKET OVERVIEWCap rates for the single tenant net leased retail and office markets reached their lowest levels in the past decade in the fourth quarter of 2013. However, cap rates for the net leased industrial market increased during the same period. The fourth quarter of 2013 represented the first time in the past decade that cap rates for the net leased retail market were below 7.00%. Net leased office properties experienced the largest cap rate decline of 30 basis points in the fourth quarter.

Although interest rates in the fourth quarter remained above early 2013 levels, cap rates have not increased. Investors’ perception was that cap rates would follow the rising interest rate climate; however this correlation did not occur. In the fourth quarter of 2013, cap rates for retail and office properties achieved ten year lows of 6.85% and 7.40% respectively. Supply constraints remain a primary factor to the current cap rate levels within the net lease market. As many institutions and real estate funds have year-end acquisition targets, the third and fourth quarters typically experience higher transaction volume when compared to the first and second quarter. The increased amount of transactions further contributed to the decrease in supply. Additionally, investors were able to refinance at historically low rates which allowed single tenant property owners to hold rather than sell.

Net leased retail properties continue to be at the forefront of investor demand as evidenced by their premium over the entire net lease market. For example, retail property cap rates were a 55 and 130 basis point premium over office and industrial properties respectively. The spread between closed and asking cap rates for retail properties increased 12 basis points in the fourth quarter of 2013 when compared to the previous quarter. This was the first time since the first quarter of 2013 that the spread had not declined.

The national single tenant net lease market should remain active in 2014 due to investors’ search for yield combined with a greater institutional acceptance of the net lease sector. In a recent national survey conducted by The Boulder Group, the majority of active net lease participants expect cap rates to rise in 2014. The largest segment of net lease participants expect cap rates to rise more than 25 basis points by the end of 2014. The most cited reason by participants was the expectation that interest rates will increase.

Sector Q3 2013 Q4 2013 Basis Point

(Previous) (Current) ChangeRetail 22 34 +12

Office 50 49 -1

Industrial 48 40 -8

NATIONAL ASKING CAP RATES

NUMBER OF PROPERTIES ADDED TO MARKET IN Q4

MEDIAN NATIONAL ASKING VS.CLOSED CAP RATE SPREAD



Q4 2013

SELECTED SINGLE TENANT SALES COMPARABLES

Sale Date Sector Tenant City State Price

PricePer SF

CapRate

Lease TermRemaining

Oct-13 Retail LA Fitness Houston TX $12,000,000 $267 7.50% 15

Oct-13 Retail Dick’s Sporting Goods Durham NC $11,800,000 $204 7.50% 9

Oct-13 Retail Trader Joe’s Evanston IL $11,000,000 $733 5.08% 15

Dec-13 Retail Kohl’s Avondale AZ $10,600,000 $120 6.55% 10

Nov-13 Retail Walgreens Greenwood IN $9,200,000 $695 5.92% 25

Nov-13 Retail Besy Buy Mishawaka IN $7,000,000 $140 10.83% 10

Oct-13 Retail Bank of America Chicago IL $6,940,000 $733 5.62% 12

Oct-13 Retail Walgreens Memphis TN $6,410,000 $440 5.90% 22

Oct-13 Office GSA - DEA Tallahassee FL $6,150,000 $322 7.64% 6

Dec-13 Retail Aldi Addison IL $5,475,000 $198 5.81% 15

Oct-13 Retail CVS Opelika AL $5,250,000 $482 6.66% 19

NET LEASED CAP RATE TRENDS

8.75%

7.75%

6.75%

7.25%

8.25%

Q22006

Q32006

Q42006

Q12007

Q22007

Q32007

Q42007

Q12008

Q22008

Q32008

Q42008

Q12009

Q22009

Q32009

Q42009

Q12010

Q22010

Q32010

Q42010

Retail Office Industrial

Q12011

Q22011

Q32011

Q42011

Q12012

Q22012

Q32012

Q42012

Q12013

Q22013

Q32013

Q42013



Q4 2013

Tenant2010-2013

2005-2009

2000-2004

Pre 2000

Walgreens 5.58% 5.75% 6.20% 7.50%

CVS 5.50% 5.75% 6.50% 7.75%

Rite Aid N/A 7.25% 7.89% 8.96%

Advance Auto Parts 6.40% 6.97% 7.65% 8.25%

AutoZone 5.69% 5.95% 7.15% N/A

O’Reilly Auto Parts 6.00% 6.40% 7.00% 8.00%

Dollar General 6.50% 7.45% 8.50% 9.00%

Family Dollar 7.25% 8.45% 8.69% 9.00%

McDonald’s 4.05% 4.50% 4.70% 5.00%

FedEx 6.50% 6.70% 7.77% 8.81%

GSA 6.75% 7.25% 7.52% 8.00%

Chase 4.60% 5.00% N/A N/A

Bank of America 4.75% 5.00% 5.88% N/A

Wells Fargo 4.70% 4.88% 5.02% 6.10%

7-Eleven 5.50% 5.88% 6.05% 6.28%

DaVita 6.57% 6.75% 7.50% 8.00%

Fresenius 6.39% 7.00% 7.10% 8.90%

FOR MORE INFORMATIONAUTHORJohn Feeney | Research [email protected]

CONTRIBUTORSRandy Blankstein | [email protected]

Jimmy Goodman | [email protected]

Zach Wright | Research [email protected]

© 2014. 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.

MEDIAN ASKING CAP RATESBY YEAR BUILT

WHERE DO YOU EXPECT NET LEASE CAP RATES TO MOVE BY THE END OF 2014?

THE BOULDER GROUP CAP RATE POLL

Cap rates willmove up 25 bps

or more

Cap rates will move up 1 bps

to 24 bps

Cap rates willremain

unchanged

Cap rates willmove down 1 bps

to 24 bps

Cap rates willmove down 25 bps

or more

(39%)

(21%)

(24%)

(16%)

(0%)

single tenant net lease research report

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