Q2 2025 National Net Lease Report: Net Lease Market Shows Signs of Stabilization After Three Years of Cap Rate Expansion

The net lease investment market is showing early signs of stabilization after three consecutive years of rising capitalization rates, according to the latest Q2 2025 research from The Boulder Group, a leading net lease investment advisory firm.

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The second quarter data reveal that overall cap rates in the single tenant net lease investments sector increased by just one basis point to 6.79%, marking a significant slowdown from the more pronounced upward trajectory experienced from 2022 to 2024. This modest increase suggests the market may finally be finding its footing in the current interest rate environment.

Market Overview and Key Metrics | Net Lease Investments | Cap rates 2025

The plateauing of cap rates 2025 can primarily be attributed to three factors: the Federal Reserve maintaining steady interest rates throughout 2025, investor adaptation to the current interest rate environment, and overall market stabilization following three years of consistent cap rate expansion and a boost in net lease investments.

National Cap Rate 2025 Performance by Sector

Industrial properties showed the strongest stability, with cap rates remaining unchanged at 7.23% for the second consecutive quarter. Retail cap rates experienced minimal movement, edging up slightly to 6.57%, while office properties saw the largest increase at 5 basis points to 7.85%.

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Market Activity and Inventory Trends

The number of properties available on the market continued to grow across most sectors:

Industrial properties showed the most significant increase in available inventory at 10.8%, while office properties were the only sector to see a decrease in available listings.

The Flight to Credit Quality

One of the most notable trends in Q2 2025 was the pronounced "flight to credit quality," where investors demonstrated a clear preference for financially strong tenants, creating significant pricing disparities based on tenant creditworthiness.

Premium vs. Challenged Tenants

High-credit retailers commanded substantially lower cap rates than market averages:

1. 7-Eleven
   Sub-6% cap rates (specific transactions at 5.27% and 5.25%).
2. Chase Bank
   4.75% cap rate.
3. Wawa
   5.75% cap rate.

In contrast, tenants facing corporate challenges traded at much higher cap rates:

• Walgreens
  7.13% cap rate (well above the 6.57% retail average).

This bifurcation reflects investors' heightened focus on tenant financial strength amid ongoing economic uncertainty.

Quick Service Restaurant (QSR) Sector Leadership

The QSR sector continued to attract the most aggressive pricing in the net lease market, with corporate-backed brands maintaining their position as the most sought-after assets:

Top-Performing QSR Brands by Cap Rate

**The data shows that ground lease structures for McDonald's and Chick-fil-A continue to command the absolute lowest cap rates in the entire net lease market.

Selected Transaction Highlights

The following major transactions from Q2 2025 illustrate current market pricing across different sectors and tenant types:

Notable Single Tenant Sales

These transactions demonstrate the wide range of cap rates based on tenant credit quality and sector, with government tenants and financial institutions commanding the lowest rates.

Sector-Specific Analysis

Retail Sector Resilience

Despite minimal cap rate increases, the retail sector showed remarkable stability with only a 1 basis point increase. Long-term lease commitments continue to attract investors, with properties featuring 16-20 year lease terms commanding cap rates around 6.00%.

Industrial Market Strength

The industrial sector's unchanged cap rates for two consecutive quarters indicate strong investor confidence, even as available inventory increased by 10.8%. This suggests robust demand continues to match increased supply.

Office Sector Challenges

Office properties experienced the largest cap rate increase at 5 basis points, reflecting ongoing challenges in the commercial office market. However, specialized medical and government office properties continue to perform well.

Market Outlook and Investment Implications

Stabilization Indicators

Several factors point to continued market stabilization:

1. Narrowing bid-ask spreads
   The difference between what sellers want and what buyers are willing to pay has decreased.
2. Continued institutional participation
   Large investment firms remain active in the market.
3. Improved market liquidity
   More transactions are completing successfully.

Future Expectations

While transaction volume remains below historical peaks, particularly in the 1031 exchange space, industry experts expect net lease activity to gain momentum through the remainder of 2025. However, pricing and transaction volumes will likely remain well below the peak market conditions experienced in prior years.

Investment Strategy Considerations

Current market conditions favor investors who:

1. Prioritize tenant credit quality over yield maximization.
2. Focus on longer-term lease commitments.
3. Consider ground lease structures for premium QSR brands.
4. Evaluate industrial properties for stable returns.

Historical Context and Long-Term Trends

The current stabilization comes after a significant period of cap rate expansion that began in 2022. The net lease market has historically shown resilience during economic uncertainty, and the current data suggests this trend continues.

Cap Rate Evolution by Sector

Looking at the broader trend, all three major sectors have experienced substantial cap rate increases since 2022:

1. Industrial rates have risen from historic lows.
2. Retail has shown steady, measured increases.
3. Office rates have experienced the most volatility.

Methodology and Data Sources

This analysis is based on comprehensive market data compiled by The Boulder Group, which tracks thousands of net lease transactions and listings across the United States. The firm maintains one of the most extensive databases of net lease transaction comparables in the industry.

About the Research

This article is based on The Boulder Group's Q2 2025 Net Lease Market Report. The Boulder Group is a leading net lease investment advisory firm specializing in single-tenant net lease properties. Their research team, led by President Randy Blankstein and Partner Jimmy Goodman, provides regular market analysis and transaction guidance to investors nationwide.

For access to the complete original research report and additional market data, visit The Boulder Group's research page.

Editorial Note: PaperFree Real Estate Investment Magazine republishes this analysis with permission and appropriate attribution to provide our readers with comprehensive market insights. The original research and data compilation credit belongs entirely to The Boulder Group and its research team.