Research: 1Q 2012 Cap Rates Flat

Boulder Group Chart: Cap rates flat

The Net Lease Market Report from Chicago-based Boulder Group says the asking cap rates around the country are more or less flat versus the previous quarter. Retail sector cap rates rose 3 points, industrial sector cap rates dipped 6 points and office cap rates fell 15 basis points according to the company’s investment research.

Interviewed at Globe Street, Boulder Group President Randy Blankstein said low availability of lease financing was part of the reason why cap rates were flat.

“There just isn’t much core available, it’s a bifurcated market. Investors are going to move into shorter term properties with secondary credit, with higher risk.”

Higher interest rates may already be forcing investors into higher return territory, such as the 10-Year Treasury Rate going up to 2.39% in March. If interest rates continue to increase, cap rate compression could suffer worse than since Q2 2011.

New development will remain limited throughout 2012, he says. “While there may be some new dollar stores and banks, there’s just too much need to fill vacant boxes such as Borders,” Blankstein says.

Long an attraction to investors for their high and steady rates of return against low interest rates, net lease deals provide that the tenant pays not only rent, but a range of costs associated with the property including taxes, maintenance, utilities and others.

Since many net lease players expect the market to slow, the outlook for brokers could mean a return to a more traditional, less securitized commercial property market, constrained both by limited availability of financing and by the turning away of investment capital from such deals.  While cap rates will always vary by location, by expense structure and lease term, don’t be surprised to see reminders that cash — even in commercial real estate — is king.


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