Triple
Net Lease Market
Overall,
net lease cap rates fell by 25 basis points in 2011. The primary drivers of
this trend are lack of product (especially high quality product) and an ease in
lending conditions. Construction of new net lease product continues to flow at
a trickle while financing has become more available with local and regional
banks competing with insurance companies for credit tenant deals. Investors
have shown the willingness and ability to invest but are hindered by lack of
product to satiate their demand. This lack of supply and increase in demand has
forced prices up and cap rates down many would argue that 2012 promises to be a
seller’s market in 2012. It is worth noting that these numbers illustrate the
average trend in net lease cap rates and the net lease market itself is highly
diverse depending upon tenant, lease terms and location.
Though
these factors have always been significant, their effects have recently
compounded. Investors have shown a preference for high quality tenants in prime
urban and suburban locations and are willing to pay some of the highest prices
in recent years to obtain them. Cap rates in prime markets can be up 125bps
lower than the charted averages of many segments. However, investors are
increasingly showing interest in properties containing lower credited tenants
or located in secondary locations exchanging risk for higher returns. Net lease investments continue to gain traction as an alternative investment instrument
for cash flow and yield investors.
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