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Boulder Group Data Shows Rise in Retail Cap Rates

Boulder Group Data Shows Rise in Retail Cap Rates

The latest data from Northbrook, Ill.-based Boulder Group, a privately held firm that provides brokerage and advisory services solely focused on the single-tenant net lease sector, shows that cap rates for retail properties rose for the second straight quarter.

Cap rates also rose on office properties while falling on industrial sites. In its analysis, Boulder Group attributed the spikes—11 basis points for retail and 10 basis points for the office sector—to the fact that more non-core offerings have been brought to the market in recent months, leading to higher overall cap rates. According to the firm, cap rates for retail properties are at 8.11 percent and for office properties are at 8.50 percent.

However, while the overall retail cap rate rose, cap rates for credit tenants and long-term leases continued to compress. For example, cap rates on Walgreens drugstores fell 40 basis points from 7.50 percent in the second quarter to 7.10 percent in the third quarter while cap rates on CVS drugstores fell from 7.50 percent to 7.30 percent in the same time period.

“The contributing factor behind this divergence between core single tenant assets and the remaining assets is financing remains readily available for investment grade tenanted properties and in limited availability for lesser properties,” according to the Boulder Group’s report. “A second contributing factor is that investors remain risk adverse and have continued their flight to quality assets.”

A lack of development has created a shortage in the supply of net lease space and Boulder expects this scarcity to last until at least 2012. The lack of new supply means that, “sellers will continue to bring lower quality offerings (second tier metros, shorter leases, below investment grade tenant) to market in greater numbers from now until at least the end of 2011.”

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