The average cap rate across net lease sectors rose 20 basis points, as the average remaining lease term dropped by half a year.
After slumping in the second quarter, single-tenant net lease sales rose 13.8% in Q3, according to the U.S. Capital Markets Net Lease Group Cap Rate Report from Avison Young.
In all, 329 trades occurred in Q3, which was an increase compared to the 289 posted in Q2. Q3’s sales figure was still well below the 416 transactions posted in Q1.
While sales increased from Q2 to Q3, the average cap rate across sectors rose 20 basis points, as the average remaining lease term dropped by half a year, according to Avison Young. However, if an asset had 10 or more years remaining on its lease, the cap rate decreased 14 basis points to 5.97%.
“The fact that cap rates have risen only minimally in 2020 is likely explained by investors’ increased focus on the handful of tenant sectors considered to be the most stable,” according to Avison Young. According to Avison Young, the best performers in Q3 were stores inhabited by automotive, quick service restaurants (QSRs), pharmacies and dollar stores.
The average cap rate in the automotive sector rose 21 basis points to 6.50%, while the number of trades in the sector rose from 21 to 37. For QSR, cap rates fell 11 basis points to 5.61% despite a two-year decrease in average remaining lease term. Trades jumped to 91 after hitting just 49 in Q2. Cap rates for pharmacies stayed around 6.30%, while the average lease term fell half a year. Trades increased from 41 to 56 quarter-over-quarter.