Q1 2022 Net Lease Cap Rate Report

Q1 2022 Summary:

Analysis indicates the average Net Lease Cap Rate is 5.55% in Q1, a compression of 0.28 bps from 5.83% in Q4 2021. The single tenant net lease sector continues to reach record cap rates and pricing per square foot, most notably in the retail and industrial asset classes. The greatest reduction in retail cap rates is auto parts (- 68 bps) and grocery stores (- 43 bps), with car washes (- 39 bps) and dollar stores (- 36 bps) also compressing significantly. QSR remains among the most compressed cap rate categories in the retail segment, at a cap rate of 4.89%.

The largest drop in industrial cap rates is within manufacturing (-0.72) and warehouse (-0.59). With demand outpacing supply, cap rates for industrial assets have reached historic lows. Supply is further exacerbated by demand from e-commerce businesses to meet their local distribution and warehousing needs. Leveling is only likely to occur in the long-term with new construction projects supplying additional inventory.

Transaction volume in the fourth quarter of 2021 picked up to reach $4.4 billion, with over 23.6 million square feet of STNL space sold in the U.S. The single tenant net lease market has yet to show any signs of slowed growth. Long-term leases, investment grade tenants, and historically low mortgage interest rates will continue to drive the single tenant net lease market.