MarketSnapshot: Single-Tenant Retail

Over the last two years, the single-tenant net lease retail sector has experienced its ups and downs as it pertains to investment sales volume. In this time, the market has reported moments of both robust and sluggish activity in alternating quarters. Third quarter 2024, however, witnessed a continuation of second quarter’s slump, with approximately $2.4 billion in transactions recorded. While this represents a 14.6% jump over last quarter’s totals, net lease retail sales volume remains depressed, and only $8.6 billion has been logged year-to-date. At this point, the sector is not on track to meet 2023’s annual transaction volume, which would make this year the slowest in over a decade.

Climbing sharply in recent quarters, the average net lease retail cap rate now sits at 6.74%. The market has seen a 62-basis point jump since the start of the year, and the average has increased 112 basis points from the low mark reached in first quarter 2023. Across the single-tenant market, the retail sector shows the widest range of cap rates across the U.S., with a 147-basis point spread. On the high end, the Midwest has seen average rates creep up to 7.48%, while the West region passed the 6.0%-mark just this quarter.

Unsurprisingly, private buyers continue to be the dominant investor group for net lease retail assets, representing 50% of buyers year-to-date. Their market share has declined from recent years though, as REITs have gradually become more active in the space. After nine months of activity, REITs now comprise 28% of retail buyers, compared to 19% in 2023 and just 15% the previous year. Institutional investors and foreign capital remain largely silent in the retail sector for now.