📢 Net lease trading has reset. Volume slid to decade-low territory while pricing discovery converged near ~7% yields. Industrial still commands capital. Necessity retail is the lone YoY gainer. Office remains impaired. The negligible cap-rate drift in Q2 signals buyers and sellers are clearing around a stable cost of capital.
Q2 2025 volume: $9.6B (−13% QoQ, −4.6% YoY); second-lowest quarter in 10+ years.
Avg cap rate: 6.93% (+3 bps QoQ; ~+130 bps vs 2022 trough).
Buyer share: Private ~50%, Institutional ~25%, REITs ~7%, Foreign ~5%.
Loan Performance. Debt costs of ~6–7% compress going-in spreads at 6.9–7.1% caps, raising DSCR hurdles and extending marketing timelines. REIT cost-of-capital remains dilutive, removing a key liquidity source; private 1031s and selective funds backfill but demand higher yields, especially for short WAULT or sub-IG credits. Maturities force selective trades; cures hinge on extensions and TI/LLI-light tenants.
Demand Dynamics. Tenant quality bifurcates outcomes. Essential retail and logistics keep velocity; discretionary retail and single-tenant office face renewal risk and residual uncertainty. Long leases with CPI bumps preserve value; flat-rent or low-credit leases face wider bid-ask and require yield.
Asset Strategies. Sale-leasebacks in industrial and necessity retail price best. Short-term leases need pre-emptive renewals to defend exit value. Portfolios should be sliced to match the active private buyer set; weaker credits or tertiary sites need pricing at or above 7.5–8% to move
Capital Markets. The 10Y ~4.0–4.2% restores a ~250–300 bps cap-rate spread, explaining the Q2 flattening. Life cos, credit unions, and debt funds lend at lower LTVs, favoring IG credits. If rates hold, caps likely hover near ~7%; a duration rally would compress first on industrial and top-credit retail.
Liquidity trough, not a cliff; clears around ~7% caps.
Industrial leads; necessity retail resilient; office avoided.
Private/1031 capital sets the market while REITs sit out.
Minor cap-rate moves now track Treasuries tight.
🛠 Operator’s Lens
Extend WAULT now; 3–5 year tack-ons defend value and financeability. Price renewals with CPI floors where possible.
For dispositions, package by credit and lease term; target private 1031 buyers with turnkey stories and clean estoppels. Expect longer marketing and hold-carry in models.
Base case: volumes remain muted through 2025, then improve as rates ease and REITs re-enter. Caps plateau near ~7% short-term; compression starts on IG industrial and essential retail if the 10Y fades. Single-tenant office likely softens further absent renewal clarity. Watch Q3/Q4 prints for confirmation that cap-rate drift has stopped and whether retail’s YoY outperformance persists.
Northmarq Single-Tenant MarketSnapshot (Q2 2025)
