Single-Tenant Net-Lease Market: QoQ Investment Sales Rebound
According to Northmarq’s Single-Tenant Q1 2024 report, investment sales activity hit $11.2 billion, a 26% increase from the previous quarter. While the numbers reflect “a 4.5% decline compared to this time last year,” the Northmarq analysts note that the sector continues to perform consistently. “The first three months of 2024 put the market on a promising trajectory to surpass 2023’s total,” they added.
Investment sales volume by single-tenant asset type was as follows:
- Industrial — $4.03 billion
- Retail — $3.90 billion
- Office — $3.23 billion
Cap Rate Increases
Northmarq reported that the average cap rate for the combined net-lease sector increased by 20 basis points (bps) to 6.5%. This represented “the highest average seen since mid-year 2015,” the analysts pointed out. While single-tenant office cap rates topped out at 6.81%, retail remained the lowest at 6.38%. Meanwhile, the industrial cap rate reached 6.55%, or 102 bps higher than the previous year.
“As buyers and sellers continue to adjust their pricing expectations in today’s market, further increases across all sectors should be expected as we move through 2024,” the analysts said.
Changes in Buyer Type
There’s also been a change in who’s buying these net lease properties. During the past decade, private buyers have been prominent, making up between one-third and one-half of the activity in this sector. But during Q1 2024, public REITs became more active.
“With 36% of the overall single-tenant market, public REITs also dominated market share in the office and retail sectors,” the Northmarq report said. They weren’t as active on the industrial side, however. This doesn’t mean that private buyers are down and out, though.
Still, interest rates remain elevated. As a result, “some individual investors who aren’t being driven to act by a 1031 exchange might decide to rest on the sidelines for a little while longer,” Northmarq analysts said.
