Could a Strong Q4 Carry Momentum into 2021?
After a down year with an economy heavily impacted by Covid-19, the 4th quarter of 2020 had a tremendous amount of activity in the single-tenant net lease market. Pent up demand and optimism surrounding the Covid-19 vaccine resulted in the fifth strongest fourth quarter in history, with more than $20.5 billion in investment sales reported.
Cap rates for all three property sectors reached historic lows in the 4th quarter, in part due to low interest rates which don’t seem to be increasing anytime soon. According to The Boulder Group, single tenant industrial cap rates ended the year at 6.75%, retail cap rates compressed to 6.00% and to my surprise, office cap rates remained right where they were in the 3rd quarter, at 6.90%.
Much is unknown as 2021 unfolds but I expect investor demand will remain constant this year, especially for those tenants deemed “essential” during the pandemic. As confidence in our economy begins to rebound with the vaccine rollout and warmer weather on the way, we can prepare for a positive year for the net lease sector. We are facing uncertainty with the future of 1031 exchanges now that Congress is under Democratic control, and any legislation that negatively impacts 1031 exchanges would have an equal impact on the net lease sector.
Justin Langlois, CCIM is a Commercial Real Estate Investment Advisor with Stirling Properties servicing Baton Rouge, Louisiana and surrounding markets. Please reach out to Justin to discuss your real estate investment strategies.