2024 Net Lease Overall Sales Volume and Cap Rates

During the first quarter of 2024, the single-tenant net lease market reported rebounding investment sales activity as levels increased to $11.2 billion—up more than 26 percent from the previous quarter. While this represents a slight 4.5 percent decline compared to this time last year, the market has performed consistently in four out of the last five quarters, with the first three months of 2024 putting the market on a promising trajectory to surpass 2023’s total.

Average cap rates for the combined net lease sector increased 20 basis points during first quarter to 6.50 percent—the highest average seen since mid-2015. Unsurprisingly, single-tenant office cap rates are the highest at 6.81 percent, while retail remains the lowest at 6.38 percent. Year-over-year, however, the net lease industrial sector has seen the most significant increases. At 6.55 percent, industrial cap rates now sit 102 basis points higher than this time last 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.

Buyer distribution

One notable trend across the single-tenant net lease market is a shift in buyer distribution. The most dominant investor group in the last decade has been private buyers, regularly capturing between one-third and one-half of all net lease activity. In the first three months of 2024, that dynamic shifted as public REITs became more active.

With 36 percent of the overall single-tenant market, public REITs also dominated market share in the office and retail sectors. They were less involved in industrial acquisitions though, outpaced by a noticeable uptick in foreign capital investment.

These observations don’t mean private investors are out of the market, however. Ratios are likely to even out as the year progresses, but with interest rates still elevated, some individual investors who aren’t being driven to act by a 1031 exchange, for example, might decide to rest on the sidelines for a little while longer.

Lanie Beck is the Senior Director of Content & Marketing Research at Northmarq. She is responsible for leading the content strategy for the firm and producing research reports in support of the organization’s commercial investment sales division.

—Posted on August. 28, 2024