As you will see from the table below, cap rates for single tenant net leased (STNL) properties have compressed significantly since 2019. As the majority of STNL properties are essential to retail, the assets performed well throughout the COVID-19 pandemic, relative to other commercial real estate asset classes. Essential retail, in conjunction with economic easing from the Fed, availability of investment options, and several other market trends led to the cap rate compression we see in the market today. Although the Fed has plans to raise interest rates four times this year, we do not forecast cap rates to rise at the same pace. Rather we expect cap rates to remain close within the range of current levels. There’s still a significant amount of dry powder and a shortage of net lease investment opportunities to meet the capital placement demand.
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