Net Lease Investors Pay Up for Credit as Q1 Sales Show Flight to Quality

Single‑tenant net-lease supply shrank in the first quarter, but investors weren't stepping away—they were getting choosier. Boulder Group's Q1 2026 Net Lease Market Report shows overall national asking cap rates edging down a basis point to 6.80%, even as the number of properties on the market fell 9.8% from the prior quarter. That combination of modest cap rate compression and a thinner pipeline suggests capital is concentrating on the highest‑quality offerings rather than retreating altogether.

The report attributes part of the inventory decline to elevated Q4 2025 transaction activity, helped by 100% bonus depreciation that pulled some deals forward. By Q1, there were 5,151 single‑tenant properties on the market, down from 5,710, with retail listings off 11.1%, office down 6% and industrial down 5.3%.

Against that backdrop, the Federal Reserve held the funds rate at 3.50%–3.75% at both its January and March meetings, while the 10‑Year Treasury climbed nearly 30 bps late in the quarter to around 4.48% on renewed inflation worries and Middle East risk. Even so, the bid‑ask spread for retail and industrial compressed, indicating that where investors saw quality, they were willing to transact.

Office and industrial lead cap rate moves

Cap rates did not move uniformly across property types. Office asking cap rates posted the largest compression, falling 10 bps quarter‑over‑quarter to 7.90%, while industrial slipped 5 bps to 7.15%. Retail held flat at 6.55% for the second consecutive quarter.

At the same time, the median asking‑to‑closed cap rate spread tightened for retail and industrial. Retail's spread narrowed by 2 bps to 23 bps, and industrial's compressed 4 bps to 25 bps, while office stayed at 50 bps. For buyers, that narrowing suggests less room to negotiate on best‑in‑class assets; for sellers, it validates pricing when the tenant and lease profile check out.

Selected Q1 sales comparables highlight where investors are willing to compress yield. In Venice, CA, a Google‑leased office traded for $39.6M at $507 per sf and a 7.25% cap rate with four years of term remaining. In Redmond, WA, a Crowdstrike office sold for $23M at $660 per sf and a 7.30% cap with six years left. On the industrial side, a Rivian facility in Vista, CA, changed hands at $16M, or $267 per sf, at a 6.25% cap and five years of remaining term, while a CenturyLink industrial asset in Fort Myers, FL, traded at $5M, $83 per sf, at a notably low 4.04% cap with only two years left, underscoring the weight investors place on tenant credit even with shorter duration.

Retail comparables further illustrate the pricing range for credit and use. A Tesla‑occupied property in Valencia, CA, sold for $33M at $842 per sf and a 6.30% cap with 13 years remaining. A 7‑Eleven in Chattanooga, TN, achieved $9,221,314, or $1,983 per sf, at a 5.35% cap with 14 years of term, while a Wawa in Wilson, NC, traded for $5.55M at $917 per sf and a 5.29% cap with 17 years left. A Publix in Foley, AL, sold for $10.81M at $223 per sf and a 5.50% cap with three years remaining, giving a glimpse of how grocers with shorter terms are being priced.

Sector slices: auto, dining, dollar stores and drug stores

Within the auto sector, overall asking cap rates declined 5 bps in Q1 to 6.45%. Auto parts assets saw cap rates tick up 5 bps to 6.65%, while auto service compressed 4 bps to 6.15% and collision centers were flat at 6.65%. Across auto, lease term remains a clear pricing lever: assets with 16–20 years of term are trading around the high‑5% range, while deals with five years or less are in the high‑7% to low‑8% range.

Casual dining showed modest cap compression. All corporate casual dining asking cap rates fell 5 bps to 6.55%. Within that group, Chili's moved the most, dropping 15 bps to 5.85%, while IHOP and Olive Garden compressed 11 bps and 10 bps respectively, to 6.90% and 5.75%. Applebee's and Outback Steakhouse were unchanged, and Texas Roadhouse ground leases tightened 5 bps to 5.30%.

Dollar stores and drug stores moved in the opposite direction. The dollar store sector's national asking cap rate rose 7 bps to 7.47%, led by a 15‑bp increase for Family Dollar to 8.65%, while Dollar General and Dollar Tree moved up 5 bps and 7 bps to 7.15% and 7.57%, respectively. The drug store sector saw its overall asking cap rate climb 10 bps to 7.85%, with Walgreens at 8.10% and CVS at 6.80%, both up from Q4. Here, again, lease term drives pricing: the report shows Walgreens with 15–19 years remaining at 6.75% versus sub‑5‑year assets at 9.25%, while CVS ranges from 6.35% for the longest terms to 8.45% for under-5-year assets.

QSR: small moves, clear hierarchy

Quick service restaurants posted only incremental changes, but the hierarchy between corporate and franchisee deals remained clear. All corporate QSR asking cap rates eased 3 bps to 5.82%, with Chipotle and Starbucks both compressing 5 bps to 5.45% and 6.45%, respectively. McDonald's ground leases saw the largest move, tightening 10 bps to 4.40%. Panera widened slightly to 5.85%, while Chick‑fil‑A ground leases and Raising Cane's held at 4.50% and 5.00%.

Franchisee QSR assets moved the other way, with the sector's asking cap rate up 5 bps to 6.80%. Burger King and Wendy's each rose 5 bps to 6.40% and 5.73%, KFC increased 10 bps to 6.50%, while Taco Bell was unchanged at 5.50%. By lease term, corporate QSR cap rates are around 5.00% for 20‑plus‑year deals and closer to 6.83% for under 10‑year leases; franchisee QSR cap rates start near 5.90% for the longest terms and move up to 7.55% for sub‑10‑year assets.

A bifurcated market watching the Fed

Across sectors, Boulder Group characterizes the market as bifurcated between premium credit assets with long remaining terms and shorter‑term or non‑rated assets that must price to higher yields. Institutional investors, 1031 exchange buyers and private capital continue to target the former, while the latter see wider spreads and more selective engagement.

With the Fed on hold and the path to further rate cuts less certain than it appeared a few months ago, Boulder Group expects transaction volume to remain steady in 2026 as pricing expectations converge. If geopolitical risk eases and the Fed ultimately delivers more than one cut later in the year, the firm sees room for net lease activity to pick up further.