Cap rates in the single-tenant net lease sector barely budged at the end of 2025, but that lack of movement speaks volumes. After nearly two years of repricing, the market appears to have digested higher borrowing costs and settled into a tighter valuation range. Instead of reacting to every Federal Reserve decision, pricing is now being shaped more by property-specific factors—tenant credit, lease duration and asset risk—than by short-term monetary policy.

According to The Boulder Group’s fourth-quarter net lease report, the market has entered a more stable phase heading into 2026. Sector-level spreads have narrowed, transaction activity remains healthy and individual trades are offering a clearer picture of how investors are assigning value to risk in today’s environment.

Overall national asking cap rates for single-tenant net lease assets increased by just one basis point in Q4, landing at 6.81%. This marked the third straight quarter of only a one-basis-point change. Retail cap rates compressed slightly to 6.55%, industrial held steady at 7.20%, and office expanded more meaningfully, rising 10 basis points to 8.00%.

What makes that stability notable is that it occurred despite the Federal Reserve’s third rate cut of 2025 in December, which lowered the target range by another 25 basis points to 3.50%–3.75%. Even with multiple cuts in the second half of the year, cap rates were largely unchanged, reinforcing the growing disconnect between short-term interest rate moves and near-term net lease pricing.

Inventory, meanwhile, continued to climb. Supply reached its highest level in more than a decade, with 5,710 single-tenant properties on the market—up 2.5% from the prior quarter. Retail listings increased modestly to 4,312 properties, office availability jumped 8.2% to 685 assets and industrial supply rose 5.6% to 713 properties.

Despite rising supply, bid-ask spreads tightened across all three sectors, signaling better alignment between buyers and sellers. Median spreads between national asking and closed cap rates narrowed to 25 basis points for retail, 50 basis points for office and 29 basis points for industrial, each slightly tighter than the prior quarter. Rather than signaling further correction, the data points to a market that is stabilizing.

Sector-Level Differentiation Remains Clear

Retail continues to command the lowest cap rates among major net lease sectors, with a national asking average of 6.55%, compared with 7.20% for industrial and 8.00% for office. Office remains the sector undergoing the most price discovery, with cap rates expanding faster than others amid elevated supply and ongoing concerns about long-term demand. Industrial, by contrast, appears to be pausing after prior repricing, even as more assets come to market.

The tightening gap between asking and executed trades suggests that sellers are increasingly realistic, while buyers are still pricing risk carefully but with more confidence. Transaction volume was strong in the fourth quarter, driven by both private and institutional investors seeking durable, predictable income. The Boulder Group notes that even if rates fall further, cap rates are unlikely to follow immediately, given the historically weak and delayed relationship between the two.

Auto, Casual Dining and Dollar Stores

Within the auto-related net lease space, cap rate movement was mixed but modest. Auto parts assets ticked up two basis points to 6.60%, auto service rose four basis points to 6.19% and collision centers compressed six basis points to 6.65%. Taken together, the blended auto sector cap rate declined five basis points to 6.50%.

Across all auto categories, remaining lease term continues to be one of the strongest pricing drivers. Assets with 16–20 years remaining trade in the mid-5% to mid-6% range, while those with five years or less remaining often price in the low- to mid-8% range.

Casual dining showed slight compression overall, with corporate-backed assets declining from a 6.64% median asking cap rate to 6.60%. Individual brands told a more nuanced story. Buffalo Wild Wings, IHOP, Chili’s, Olive Garden and Outback Steakhouse all saw modest compression, while Applebee’s and Texas Roadhouse ground leases remained unchanged, suggesting those concepts may already be fully priced.

Dollar stores moved in the opposite direction, with the sector’s national asking cap rate rising five basis points to 7.40%. Family Dollar and Dollar General experienced increases, while Dollar Tree compressed slightly. As with other sectors, lease maturity played a decisive role, with cap rates widening significantly as remaining term shortened—pushing under-three-year deals into the 9% range or higher.

Drugstores and QSR

Drugstores continued to show widening spreads between tenants. Walgreens’ asking cap rate increased 10 basis points to 8.00%, while CVS rose just two basis points to 6.67%. The sector average climbed to 7.75%. Lease term once again drove pricing, with short-term Walgreens and CVS assets commanding materially higher yields than longer-term leases.

In the quick-service restaurant space, corporate-backed assets saw a slight uptick, with median asking cap rates rising to 5.85%. Brand-level movement stayed within a narrow band: Chick-fil-A ground leases compressed, Chipotle and Raising Cane’s held steady, while Starbucks and Panera widened modestly.

Franchisee QSR assets continued to price at higher yields than corporate locations, with the national median increasing to 6.75%. Across both corporate and franchisee deals, the drop-off in pricing as lease terms shorten remains pronounced.

Trades and the Path into 2026

Recent transactions illustrate how this pricing framework plays out in practice. On the industrial side, long-term, high-credit deals like an Amazon-leased facility in Oregon traded in the mid-5% range, while shorter-term or less-stable credits pushed cap rates closer to 7% or higher.

Office and retail trades followed similar patterns. Long-term leases to strong tenants such as Quest Diagnostics or Sprouts achieved relatively low cap rates, while assets with shorter terms, specialized uses or higher re-tenanting risk traded at meaningfully higher yields.

Taken together, the data suggests the net lease market has found its footing. Pricing is no longer reacting dramatically to macro headlines but is instead being driven by fundamentals at the asset level. As 2026 approaches, investors appear focused less on where rates go next—and more on what each individual lease, tenant and term is truly worth.

 

Source: GlobeSt.