Cap Rates Drop in Big-Box Net Lease Sector

The median capitalization rate for single net-leased big-box stores fell year-over-year by 16 basis points to 8.35 percent in 3Q11, according to The Boulder Group'sNet Lease Big Box Report, but remain 60 bps above the median cap rates of the overall retail net-lease sector. The report attributes the decline to lower interest rates.

Seventy percent of big-box tenants have a non-investment grade rating, contributing to overall higher cap rates compared to the overall net-lease retail market. Another factor contributing to higher cap rates is the median price for big-box properties -- more than $4 million in 2011 -- which limits the number of potential investors. In the single-tenant lease market, 71 percent of properties are priced below $3 million.

Investors seeking net-leased properties with high yields will drive continued activity in the net leased big box sectors, according to the report.