Owners of freestanding stores dumped a load of lesser-quality properties on the market in the fourth quarter, driving up cap rates for the sector slightly from the third quarter’s historic lows, according to a Boulder Group survey of deals.

Cap rates for retail increased from the third to fourth quarter to 5.88% and for industrial to 6.77%. Office net lease cap rates remained unchanged at 6.8%. A cap rate is net operating income divided by the price paid for the asset; it represents the rate of return on a real estate investment property based on the income the property is expected to generate.

Low interest rates and substantial amounts of investment capital chasing stable yields drove total net lease transaction volume in 2021 to more than $90 billion. That’s a record for the net lease sector, according to Boulder. But a limited supply of properties with attributes that command low cap rates — such attributes include long-term leases, primary market locations and investment-grade tenants — drove cap rates down and made the sector less expensive. The supply of net lease properties for sale in the fourth quarter increased by more than 10% from the third quarter, but less than 25% of that supply had leases with more than 15 years remaining on their primary terms, according to Boulder.

“As a result of the low-cap-rate environment and high demand for net lease properties, net lease owners added lesser-quality properties to the market to take advantage of attractive pricing,” said The Boulder Group partner Jimmy Goodman.