ARE NET LEASE INVESTMENT PROPERTIES FEELING THE HEAT OF RISING INTEREST RATES?
Buyers vying for net lease investment properties have been paying top dollar to win deals. But an increase in interest rates is already causing cap rates to creep higher and there could be more price adjustments ahead for 2017, according to a recent article by National Real Estate Investor.
Pricing on net lease assets has been at all-time highs for the past two to three years, and many in the industry believe that higher interest rates will likely have a cooling effect on pricing and cap rates.
It also remains to be seen whether a shift in pricing expectations will slow sales activity. Buyer demand is still very strong and there is still a lot of liquidity on the sidelines chasing solid assets, experts said. However, data shows single tenant transaction volume has declined compared to the near record highs achieved in 2015. That could be a reflection of the bull run the market has been on in recent years, with a lot of opportunistic sellers that have already pulled the trigger and completed transactions, according to National Real Estate Investor Reporter Beth Mattson-Teig.
Last year was another strong year for single tenant investment sales in the country, with total transactions of $54.1 billion—on par with 2014. However, that volume fell short of 2015 by about 16 percent, according to research firm Real Capital Analytics (RCA), which tracks single tenant property sales valued at $2.5 million and higher.
Single tenant industrial assets are a highly sought after property type right now, especially properties that are e-commerce-related, experts said. Private capital buyers are also being very aggressive on single tenant office properties, Mattson-Teig said.