{"id":1004745500,"date":"2025-02-06T07:16:34","date_gmt":"2025-02-06T15:16:34","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004745500"},"modified":"2026-02-13T07:54:30","modified_gmt":"2026-02-13T15:54:30","slug":"understanding-the-net-lease-reset","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/understanding-the-net-lease-reset\/","title":{"rendered":"Understanding the Net Lease Reset"},"content":{"rendered":"\n<p>The single most pressing question in today\u2019s net lease marketplace is this: What\u2019s happening with cap rates?<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"alignright size-full is-resized\"><img loading=\"lazy\" decoding=\"async\" width=\"402\" height=\"310\" data-attachment-id=\"1004745505\" data-permalink=\"https:\/\/www.commercialsearch.com\/news\/understanding-the-net-lease-reset\/bj_feller_2023_704x1123-copy\/\" data-orig-file=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2025\/02\/BJ_Feller_2023_704x1123-copy.jpg\" data-orig-size=\"402,310\" data-comments-opened=\"0\" data-image-meta=\"{&quot;aperture&quot;:&quot;0&quot;,&quot;credit&quot;:&quot;&quot;,&quot;camera&quot;:&quot;&quot;,&quot;caption&quot;:&quot;&quot;,&quot;created_timestamp&quot;:&quot;0&quot;,&quot;copyright&quot;:&quot;&quot;,&quot;focal_length&quot;:&quot;0&quot;,&quot;iso&quot;:&quot;0&quot;,&quot;shutter_speed&quot;:&quot;0&quot;,&quot;title&quot;:&quot;&quot;,&quot;orientation&quot;:&quot;1&quot;}\" data-image-title=\"BJ_Feller_2023_704x1123 copy\" data-image-description=\"\" data-image-caption=\"&lt;p&gt;BJ Feller of Northmarq&lt;\/p&gt;\n\" data-large-file=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2025\/02\/BJ_Feller_2023_704x1123-copy.jpg?w=402\" src=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2025\/02\/BJ_Feller_2023_704x1123-copy.jpg\" alt=\"\" class=\"wp-image-1004745505\" style=\"width:400px\" srcset=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2025\/02\/BJ_Feller_2023_704x1123-copy.jpg 402w, https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2025\/02\/BJ_Feller_2023_704x1123-copy.jpg?resize=300,231 300w\" sizes=\"auto, (max-width: 402px) 100vw, 402px\" \/><figcaption class=\"wp-element-caption\">BJ Feller<\/figcaption><\/figure><\/div>\n\n\n<p>For the past two years, cap rates in the net lease market have been steadily increasing, driven by rising interest rates and a notable decline in 1031 exchange activity. Historically, the flow of 1031 buyers has been a major factor in keeping cap rates aggressive, as these investors\u2014motivated by tax deferral and tight transaction deadlines\u2014often paid a premium for properties.<\/p>\n\n\n\n<p>Now, the combination of higher financing costs and fewer 1031 buyers has created a noticeable shift. As the commercial real estate landscape begins to show signs of increased transaction volume following a sluggish 2024, questions abound about where cap rates\u2014and 1031 buyers\u2014go from here.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity has-very-light-gray-to-cyan-bluish-gray-gradient-background has-background is-style-wide\"\/>\n\n\n\n<p><strong>READ ALSO:<\/strong> <a href=\"https:\/\/www.commercialsearch.com\/news\/5-overlooked-insurance-gaps-that-could-impact-profitability\/\">5 Overlooked Insurance Gaps That Could Impact Profitability<\/a><\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity has-very-light-gray-to-cyan-bluish-gray-gradient-background has-background is-style-wide\"\/>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-the-cap-rate-reset\">The cap rate reset<\/h2>\n\n\n\n<p>The days of ultra-aggressive cap rates in the net lease market are behind us. Rising interest rates have reset expectations across the board. Deals that once penciled in the low-5 percent range are now transacting in the 6 percent to 7 percent range, and even higher in some cases. This shift isn\u2019t just about interest rates\u2014it\u2019s about a recalibration of risk and return in a market where capital is more selective and cautious.<\/p>\n\n\n\n<p>That said, recent signs of life in the broader commercial real estate market are encouraging. As transaction volumes start to pick up, more 1031 buyers are reentering the net lease marketplace. But the data on their activity remains largely anecdotal, leaving many investors and market participants to speculate on the true extent of their impact.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-what-about-1031-exchange-buyers\">What about 1031 exchange buyers?<\/h2>\n\n\n\n<p>While cap rates have taken center stage, 1031 buyers remain a critical piece of the puzzle. Historically, these investors have provided liquidity to the net lease market and kept demand strong for core assets like pharmacies, fast food and essential retail. But with fewer transactions in 2024, their influence waned.<\/p>\n\n\n\n<p>Now, with deal volume increasing, we\u2019re hearing that more 1031 investors are coming back into the fold. Still, there\u2019s no definitive data to quantify their resurgence. The usual sources\u2014industry data providers, brokerages, title companies and accommodators\u2014offer little transparency, leaving the market to rely on anecdotes rather than hard facts.<\/p>\n\n\n\n<p>So, while we know 1031 buyers are returning, the following questions remain:<br>\u2022 Are they willing to transact at today\u2019s higher cap rates?<br>\u2022 Are they adjusting their risk tolerance or shifting asset preferences?<br>\u2022 How much impact will their activity have on pricing moving forward?<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-the-new-normal-for-net-lease\">The new normal for net lease<\/h2>\n\n\n\n<p>The interplay between rising cap rates and the evolving 1031 buyer landscape highlights the complexity of today\u2019s market. Investors are navigating a new normal, where pricing expectations, financing costs and buyer demand all look very different than they did just two years ago.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-what-we-re-watching\">What we\u2019re watching<\/h2>\n\n\n\n<p>Looking ahead, we\u2019re closely monitoring a few key trends:<\/p>\n\n\n\n<p>\u2022 Transaction volume: Is the recent uptick in activity sustainable, or is it a short-term reaction to pent-up demand? <br>\u2022 Cap rate stabilization: Will cap rates plateau, or could further rate hikes push them even higher?<br>\u2022 1031 buyer behavior: Are these investors adapting to the current environment, or will we see a permanent shift in their activity levels?<\/p>\n\n\n\n<p>The net lease market is undergoing a transformation. Understanding where cap rates and 1031 exchange buyers fit into this new reality isn\u2019t just about staying informed\u2014it\u2019s about staying ahead.<\/p>\n\n\n\n<p><em>BJ Feller is senior vice president &amp; managing director at <a href=\"https:\/\/www.northmarq.com\/\" target=\"_blank\" rel=\"noreferrer noopener nofollow\">Northmarq<\/a>.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p> Northmarq&#8217;s BJ Feller on cap rates, 1031 exchange buyers and the path forward.<\/p>\n","protected":false},"author":3715,"featured_media":1004745505,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21684],"tags":[],"class_list":["post-1004745500","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-viewpoint"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v23.4 (Yoast SEO v24.6) - 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