Rising Cap Rates in STNL Retail Signals Opportunity
Michael Kron
We Offer an Investment Opportunity in a Portfolio of Diversified Single Tenant Net Lease Properties to a Bespoke Group of Investors
For investors exploring the dynamic world of net lease retail real estate, recent cap rate adjustments reveal an opportune moment to enter this resilient sector. The single-tenant net lease (STNL) retail market, long regarded for its stability and attractive returns, is showing subtle shifts that make it even more compelling for savvy investors.
In the first quarter of 2024, the average asking cap rate for single-tenant net lease retail properties increased by 7 basis points, reaching 6.42% (PERE News). This is notable given that cap rates in the net lease retail sector tend to track the Fed Funds rate fairly closely and the Fed Funds rate has been moving in the opposite direction. This may signal that we are reaching a peak in the cap rates for this cycle and present an attractive entry point.
Why This Matters
1. Stability Amid Uncertainty
?? Net lease properties are known for their predictable cash flow and long-term lease structures. With high-quality tenants and low landlord responsibilities, these assets offer a level of stability that’s rare in today’s volatile market. Even as cap rates adjust, the inherent reliability of this asset class remains unchanged.
2. Attractive Entry Points
?? The modest increase in cap rates presents a window of opportunity for investors to secure assets at slightly higher yields without sacrificing quality. This is particularly true given the direction in the Fed Funds rate and the likelihood that cap rates will slow their ascent or being to drop as the Federal Reserve continues to lower interest rates.?? The increase in cap rates at a time when the Federal Reserve is lowering rates may be based upon the continued volatility in the Treasury Markets.?? Once these markets begin to stabilize, we may well see the decrease in cap rates begin.?? (Value moves in the opposite direction of cap rates so lower cap rates translate into higher values.)
3. Resilient Fundamentals
?? Segments of the net lease retail sector focused on neighborhood businesses continue to demonstrate strong fundamentals. Vacancy rates for retail are very low solidifying with strong demand, making for a resilient market and sound strategies for maintaining tenants in occupancy. Long lease terms also protect investors from vacancy loss, even in such strong markets. ?
The Bigger Picture: Why Timing Is Everything
Cap rate movements reflect market dynamics, balancing factors such as interest rates, tenant creditworthiness, and property demand. For investors, the current environment—characterized by cap rates rising modestly while the Federal Reserve is lowering interest suggests a ceiling on the cap rate increase cycle. Coupled with limited retail space availability and rising rental rates, the net lease market is primed for sustained performance (CBRE).
As a real estate fund specializing in net lease retail properties, we are uniquely positioned to capitalize on these favorable conditions. With a portfolio of high-performing assets and a focus on strategic acquisitions, our fund provides:
The slight adjustments in cap rates in the current interest rate environment isn’t just numbers on a chart; it’s a signal of opportunity for those ready to act.
Ready to secure your investment portfolio with high credit tenants? Visit Guardian Net Lease to learn more or schedule an appointment with Michael Kron, our expert in real estate investments. Or simply message me on LinkedIn.
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