Research

Net Lease Market Report Second Quarter 2024

Posted on
September 16, 2024

Net Lease Market Report Second Quarter 2024

Jesse Hunt
July 15, 2024
Time
min

Executive Summary

In the second quarter of 2024, the net lease market experienced continued upward pressure on cap rates across all asset classes: retail, office, and industrial. This trend reflects the ongoing challenges presented by elevated interest rates and decreased transaction volumes. The market saw an 8% increase in property supply, continuing to favor buyers.



Key Market Trends

Cap Rates

Elevated interest rates and reduced 1031 exchange activity remain significant drivers of this upward movement. Additionally, decreased institutional buyer activity has slowed transaction volumes, increasing the inventory of available properties.

Sector Q1 2024 Cap Rate Q2 2024 Cap Rate Basis Point Change
Retail 6.42% 6.47% +5
Office 7.60% 7.67% +7
Industrial 7.02% 7.10% +8


Market Supply

The supply of single-tenant net lease properties increased by more than 8% compared to the previous quarter, reaching the highest levels since Q4 2021. This supply growth suggests a shift in market dynamics, with buyers gaining negotiating leverage due to higher property availability.

Sector Q1 2024 Supply Q2 2024 Supply Percentage Change
Retail 3,403 3,677 +8.1%
Office 590 657 +11.4%
Industrial 472 517 +9.5%


Forecast for Second Half of 2024

  • Cap Rate Outlook: While cap rate expansion is expected to slow, further increases are anticipated due to rising property inventories. Investors will monitor Federal Reserve decisions on interest rates, as a potential cut could alleviate some market pressures.
  • Investor Focus: Properties with strong tenants and robust real estate fundamentals will continue to attract attention, especially in buyer-friendly markets.


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