Net Lease Market Report Q2 2024
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.
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.
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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