Net Lease Investors More Optimistic These Days
Following three years of expansion, cap rates are stabilizing.
Cap rates in the single-tenant net lease sector experienced minimal changes in the second quarter of 2025, with overall cap rates increasing just one basis point to 6.79 percent.
This modest increase illustrates a change from the more pronounced upward trajectory experienced from 2022 to 2024. This suggests the market may be stabilizing after three years of consistent cap rate increases.
Retail cap rates edged up slightly to 6.57 percent (+1 bp), while office cap rates increased to 7.85 percent (+5 bps). Industrial cap rates remained unchanged at 7.23 percent for the second consecutive quarter. The plateauing of cap rates can be best attributed to the combination of the Federal Reserve holding rates steady in 2025, investor adjustment to the current interest rate environment and market stabilization following three years of cap rate expansion.
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Transaction activity in the second quarter demonstrated a pronounced flight to credit quality, with premium tenants commanding cap rates lower than the market averages. High-credit retailers like 7-Eleven, Chase Bank and Wawa commanded sub-6 percent cap rates, while tenants with ongoing corporate challenges such as Walgreens traded at cap rates in excess of 7 percent. This bifurcation reflects investors’ heightened focus on tenant financial strength amid economic uncertainty. Further proof of this concept is the QSR sector, where corporate QSR brands continued to attract aggressive pricing, with Chick-fil-A and McDonald’s maintaining their position as the most aggressively priced assets in net lease at 4.45 percent and 4.38 percent cap rates, respectively.
The net lease market continues to show signs of stabilization after three years of cap rate increases, with the second quarter marking a notable change in pricing momentum. While transaction volume remains below historical peaks, particularly in the 1031 exchange space, the narrowing bid-ask spreads and continued institutional participation suggest improved market liquidity.
Investors are closely monitoring Federal Reserve policy signals and broader capital market conditions as they evaluate acquisition opportunities. With cap rate movements moderating and supply-demand dynamics showing greater balance, net lease activity is expected to gain momentum through the remainder of 2025. Pricing and transaction volumes will likely remain well below the peak market conditions experienced in prior years.
Randy Blankstein is president of net lease advisory firm The Boulder Group.
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