REAL ESTATE NEWS

Cap rates in the single-tenant net lease market barely moved in the final months of 2025, but the stillness is telling. After two years of repricing, investors are now negotiating in a narrower band where modest shifts in risk, credit and lease term are dictating value more than the Federal Reserve?s latest move. The Boulder Group?s fourth-quarter net lease report points to a market that has largely absorbed higher borrowing costs and is settling into a new equilibrium, with sector-level spreads and micro-level trades offering a clearer view of what risk actually costs heading into 2026.

The Boulder Group reports that overall asking cap rates for single-tenant net-lease assets increased just one basis point in the fourth quarter, to 6.81%, marking the third consecutive quarter of a single basis-point move. Retail compressed to 6.55% (down two basis points), office expanded to 8.00% (up 10 basis points) and industrial held flat at 7.20%.

This stability came despite the Federal Reserve?s third rate cut of 2025 in December, which lowered the target range by 25 basis points to 3.50%?3.75%, bringing the total number of cuts in the second half of the year to multiple moves. The report notes that cap rates were ?largely unaffected? by those cuts, underscoring a disconnect between short-term rate policy and immediate pricing in the net lease market.

Supply reached its highest level in more than a decade, with 5,710 properties on the market, up 2.5% quarter-over-quarter. Retail listings rose 1.1% to 4,312 properties, office inventory jumped 8.2% to 685 and industrial availability climbed 5.6% to 713.

Bid-ask spreads tightened across all sectors, reflecting improved alignment between buyers and sellers and reinforcing the report?s theme of stabilization rather than further correction. Median spreads between national asking and closed cap rates moved down to 25 basis points in retail, 50 basis points in office and 29 basis points in industrial, all slightly narrower than the prior quarter.

Sector-Level Cap Rates and Spreads

At the sector level, investors continue to differentiate between property types even within the broader theme of cap rate stability. Retail remains the tightest of the three major net-lease sectors, with a 6.55% national asking cap rate, compared with 7.20% for industrial and 8% for office.

Office shows the clearest sign of continued price discovery, with the 10-basis-point expansion to 8% outpacing changes in retail and industrial and tracking with elevated supply and broader skepticism toward long-term office demand. By contrast, industrial?s flat 7.20% reading signals a pause after previous repricing, even as more properties come to market.

The narrowing median spread between asking and closed cap rates indicates that, while buyers are still pricing in risk, sellers are more willing to meet the market. Retail?s median spread compressed from 29 to 25 basis points, office?s from 55 to 50 and industrial?s from 30 to 29, suggesting that negotiated trades are clustering closer to asking guidance than earlier in the cycle.

The Boulder Group notes that the net lease market delivered a strong fourth quarter in terms of transactional volume, with demand coming from both private and institutional buyers seeking predictable cash flow. The report adds that, even if additional rate cuts materialize, lower interest rates will not automatically translate into lower cap rates, given the historical lag and weak correlation in timing between the two.

Auto, Casual Dining and Dollar Stores

Within the auto-related net lease sector, national asking cap rates for auto parts assets edged up two basis points in the quarter to 6.60%. In comparison, auto service properties rose four basis points to 6.19% and collision centers actually compressed six basis points to 6.65%. On a blended basis, the auto sector?s overall asking cap rate moved five basis points lower, from 6.55% in the prior quarter to 6.50% in Q4.

Lease term remains a decisive driver of pricing. Across auto parts, auto service and collision, assets with 16?20 years of remaining term command cap rates in the mid-5% to mid-6% range, while properties with five years or less remaining trade closer to the low- to mid-8s. For example, auto parts cap rates move from 5.65% for 16?20 years of term to 8.05% for five years and under, while auto service shifts from 5.85% to 7.20% and collision from 6.55% to 7.95% across the same term spectrum.

In the casual dining segment, overall corporate-backed assets saw modest cap-rate compression, with the median asking rate falling from 6.64% to 6.60% in Q4. Individual brands show more nuance: Buffalo Wild Wings compressed five basis points to 6.65%, IHOP lowered seven basis points to 7.01%, Chili?s and Olive Garden each shaved two basis points to 6.00% and 5.85%, respectively, while Outback Steakhouse went down 10 basis points to 6.40%.

Certain brands held flat, highlighting where the market appears already fully priced. Applebee?s stayed at 7.60% and a representative Texas Roadhouse ground lease held at 5.35% quarter-over-quarter.

Dollar stores, a bellwether for value-focused retail, posted a modest uptick in yields. The sector?s overall national asking cap rate rose five basis points to 7.40%, driven in part by increases at Family Dollar (10 basis points to 8.50%) and Dollar General (five basis points to 7.10%), while Dollar Tree compressed two basis points to 7.50%.

Here again, the lease term exerts clear pressure on pricing. Dollar General assets with 12?15 years remaining trade at about 6.90%, but those with nine to eleven years remaining are closer to 7.30% and those with six to eight years remaining stretch to 8%; with three to five years left, cap rates move to roughly 8.40%, and under three years they reach about 9%. Family Dollar runs even wider at the short end, with under-three-year deals reaching approximately 9.50%.

Drugstores and QSR

Drugstores continue to trade with a clear spread between tenants and a widening gap relative to earlier in the cycle. The Boulder Group?s data shows Walgreens? national asking cap rate rising 10 basis points in the quarter to 8%, while CVS moved just two basis points higher to 6.67%. The broader drugstore sector average increased nine basis points, to 7.75%.

The influence of lease maturity is pronounced. Walgreens assets with 10?14 years remaining on the lease are priced around 7.40%, whereas locations with six to nine years are closer to 8.50% and those with under five years remaining approach 9.25%. For CVS, cap rates range from approximately 6.25% for 15?19 years of term to 7% for 10?14 years, 7.45% for six to nine years and 8.35% for under five years.

In the quick-service restaurant sector, corporate-backed stores saw a small increase in pricing, with the median asking cap rate for corporate QSR rising from 5.82% to 5.85% in Q4.

Brands diverged within a tight band: Chick-fil-A ground leases compressed five basis points to 4.50%, Chipotle held steady at 5.50% and McDonald?s ground leases widened two basis points to 4.50%. Panera Bread shifted five basis points higher to 5.80%, Raising Cane?s was unchanged at 5% and Starbucks widened eight basis points to 6.50%.

Franchisee QSR assets remain priced at a premium to corporate deals, with the national median asking cap rate increasing five basis points to 6.75%. Individual brands follow the same pattern: Burger King widened from 6.30% to 6.35%, Dunkin? from 6% to 6.07%, KFC from 6.28% to 6.40%, while Taco Bell stayed at 5.50% and Wendy?s rose from 5.55% to 5.68%.

The lease-term gradient is again steep. Corporate QSR properties with 20-plus years remaining average around a 5.00% cap rate, shifting to 5.45% for 15?19 years, 6% for 10?14 years and 6.90% for under 10 years. Franchisee QSR assets, by contrast, move from roughly 5.87% for 20-plus years to 6.30% for 15?19 years, 6.70% for 10?14 years and 7.50% for under 10 years.

Pricing in the trades and the 2026 outlook

Sales selectivity during the quarter shows how this pricing translates to individual assets. On the industrial side, an Amazon-leased facility in Troutdale, Oregon, traded for approximately $113.2 million at $132 per square foot and a 5.35% cap rate with seven years of term remaining, while an industrial Caf? Valley Bakery facility in Phoenix sold for roughly $57.8 million at $202 per square foot and a 5.94% cap rate with 13 years of term.

Other industrial trades pushed cap rates higher in line with shorter terms and different credit. A Wolverine Worldwide facility in Howard City, Michigan, sold for about $19.7 million at $42 per square foot and a 6.78% cap rate with two years of term remaining, while a Kryosphere industrial asset in Morrisville, North Carolina, traded for roughly $18.4 million at $323 per square foot and a 7.07% cap rate with 12 years of lease term.

Office and retail trades reflected similar risk-based gradations. A Quest Diagnostics office property in Memphis sold for about $27.9 million at $246 per square foot and a 6.26% cap rate with 12 years remaining, while a County of San Bernardino office building traded for approximately $12.95 million at $259 per square foot and a 6.65% cap rate with 10 years of term.

In retail, a Sprouts store in Coconut Creek, Florida, sold for around $14.2 million at $610 per square foot and a 5.47% cap rate with 15 years remaining, while a Chick-fil-A in Placentia, California, commanded roughly $7.9 million at $1,429 per square foot and a 4.30% cap rate with 15 years on the lease.

Higher-yield retail trades underline how operators, term and box type separate pricing even within a single quarter. A Walgreens in Brooklyn sold for about $11.2 million at $906 per square foot and a 6.43% cap rate with 11 years remaining; a 7-Eleven in Summerfield, Florida, traded for roughly $9.1 million at $1,955 per square foot and a 5.15% cap rate with 15 years remaining; a 24 Hour Fitness in Denver fetched around $8.25 million at $90 per square foot and a 9.45% cap rate with three years remaining and an Academy Sports in Belton, Missouri, sold for about $7.21 million at $123 per square foot and a 7.50% cap rate with seven years of term.

Source: GlobeSt/ALM