One of the most important distinctions in the net lease market is the difference between credit and non-credit tenants. Though we can speak in general terms about overall net lease trends, it is important to understand high credit tenants have consistently separated themselves from those of lesser investment grade. Tenants such as McDonald’s, Wal-Mart, Walgreens and Banks routinely demand lower cap rates due to their guarantee of rent payment.
We can see this clearly by observing net lease cap rate trends over the past few years. Though cap rates for credit tenants almost parallel the trend line for overall net lease cap rates, they always retain a relatively high level of separation. Recently, we have observed this spread increase further as the lack of high credit tenants on the market continues. A general ease in lending conditions has increased the demand from buyers – compressing high credit tenant cap rates further.
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