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Net Lease Big Box Report
1. THE NET LEASE
BIG BOX REPORT
FEBRUARY 2014
BIG BOX PROPERTIES MEDIAN ASKING
CAP RATES
Q4 2013
(Previous)
Q4 2013
(Current)
Basis Point
Change
7.73%
7.10%
-63
BIG BOX SECTOR VS. NET LEASE
SECTOR CAP RATES
Q4 2012
Q4 2013
(Previous)
(Current)
Big Box
7.73%
7.10%
Retail Net Lease Market
7.25%
6.85%
Big Box Discount (bps)
48
25
Average
Average Price
Investment Grade
Price
$7,135,800
Per Foot
$180
Non Investment Grade
$5,531,200
$153
BIG BOX MEDIAN ASKING CAP
RATE BY CREDIT RATING
Cap rates in the single tenant net leased big box sector compressed from
the fourth quarter of 2012 to the fourth quarter of 2013 by 63 basis
points. The decline in cap rate was primarily due to the limited supply of
big box properties available within the net lease market. Investor demand
was driven by institutional investors and real estate funds targeting
higher dollar valued properties to reach acquisition goals after a record
fundraising year. While institutional investors are the primary buyer of big
box properties, 1031 exchange buyers with large exchange requirements
are able to pay a premium for these assets due to their short deadlines.
Despite the year over year cap rate decline, big box properties were still
priced at a 25 basis point discount to the entire net lease retail market in
the fourth quarter of 2013.
Lack of new construction remains the major supply constraint as big box
retailers have limited expansion plans. Furthermore, big box retailers that
are expanding are able to backfill second generation real estate at lower
rents than leasing new construction freestanding locations. Typically,
rents for a new construction freestanding big box property exceed second
generation rents and tenants can occupy second generation space
quicker. Additionally, many large format retailers such as Costco, Target
and Wal-Mart tend to own their own real estate further contributing to the
supply limitations.
BIG BOX PROPERTIES MEDIAN
ASKING PRICE
MARKET OVERVIEW
Investment Grade
Non-Investment Grade
Basis Point
Cap Rate
6.25%
Cap Rate
7.50%
Spread
+125
Big box properties tenanted by investment grade companies remain at
the forefront of investor demand. In the fourth quarter of 2013, big box
properties with investment grade tenants were priced at a 125 basis point
premium over non-investment grade tenants. The premium associated with
investment grade tenants primarily exists as financing terms favor these
assets. However, due to the large premium associated with investment
grade properties, some investors are beginning to change their acquisition
criteria to include non-investment grade properties, like Academy Sports,
Best Buy and Hobby Lobby, as higher yields can be achieved. The supply
of investment grade properties only made up 25% of the big box market in
2013, a 5% decrease from a year ago.
The single tenant net leased big box sector will remain active as institutional
investors seek net leased properties with higher dollar amounts. However,
the property supply of new construction will remain low as big box
tenant expansion plans remain limited for 2014. The low supply of new
construction assets should be offset by maturing CMBS loans. Property
owners with maturing debt will have the option to either refinance at low
interest rates by historical standards or sell and take advantage of the low
cap rates available in today’s net lease market.
www.bouldergroup.com
2. THE NET LEASE
BIG BOX REPORT
FEBRUARY 2014
MEDIAN ASKING CAP RATE BY SQUARE
FOOTAGE
SF Range
Cap Rate
20,000-40,000
7.05%
52%
Mid Box
40,000-80,000
7.18%
Over 80,000
7.58%
Percentage
of Market
Junior Big Box
MEDIAN ASKING CAP RATE BY LEASE
TERM REMAINING
Non Investment
Grade
16-20
5.80%
6.74%
32%
11-15
5.98%
7.50%
15%
6-10
6.42%
7.65%
5 & Under
Large Format
Investment
Grade
6.90%
8.25%
Years Remaining
BIG BOX MEDIAN ASKING CAP RATE BY REGION
6.63%
7.35%
7.50%
T
AS
E
TH
OR
N
WEST
MOUNTAIN
MIDWEST
SOUTH
8.00%
7.25%
www.bouldergroup.com