Net Lease Real Estate
As of the third quarter of 2021, the trailing 12-month U.S. single-tenant transaction volume totaled $76 billion, according to Real Capital Analytics (RCA). The pandemic-driven decline in single-tenant volume in 2020 appears to have been brief, as total volume at the end of the third quarter was nearing the peak witnessed in early 2020. There has been a sharp increase in total volume over the past few quarters, primarily driven by growth in industrial transactions, as well as a lesser increase in office transactions; retail volume growth has lagged the other property types.
In the third quarter of 2021, cap rates reached their lowest levels in recent years. Industrial cap rates have led the compression, while office and retail cap rates have remained far more stable. For reference, since the first quarter of 2019, office and retail cap rates have remained largely flat, while industrial cap rates have compressed by nearly 10%—declining from 6.2% to 5.7%.
The growth in transaction volume and the cap rate compression are attributable to the favorable net lease environment in the third quarter of 2021. There are a number of positive factors that contributed to the net lease environment being favorable, including large-scale vaccine rollouts, high occupancy levels, and higher inflation expectations, which have increased the attractiveness of Consumer Price Index-linked leases.
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Retail and office cap rates have remained relatively flat, while industrial cap rates compressed.
Single-tenant volume quickly increased in Q3 2021.