Cap Rates Contract in Auto Parts Sector

Capitalization rates for auto parts chains, including AutoZone, O’Reilly Auto Parts, and Advance Auto Parts, compressed from 4Q11 to 4Q12, according to The Boulder Group’s National Auto Parts Net-Lease Report.

A shortage of both investment-grade assets below $2 million in the net-lease market and newly developed assets contributed to the compression. Median asking cap rates remained relatively consistent across the country at a 7 percent median asking cap rate in the Northeast, South, and Midwest. In the West, cap rates remained constant at 6.6 percent.

Despite the supply-boost of 500 new auto parts stores last year and projected supply growth in 2013, many of the predominantly tenant-owned properties won’t be brought to market, according to the report. However, demand for this niche will remain high as consumers continue to repair older vehicles rather than purchase new ones. In addition, demand will be particularly strong for properties with short-term leases in first-tier markets and for properties with more than 10 years remaining on their leases.

Download the complete report (PDF).