Cap Rates for Net Lease Dollar Store Properties Compress to Historic Levels | The Boulder Group

The Boulder Group announced the release of its Net Lease Dollar Store Report today. In the second quarter national asking cap rates in the single tenant dollar store sector compressed to 6.11%, according to the 2021 Net Lease Market Report. This represented an 87 basis point increase when compared to the prior year.

“Cap rates for in the dollar store sector reached new historic low levels for Dollar General and Dollar Tree,” says Randy Blankstein, President, The Boulder Group.

According to the report, Dollar General cap rates compressed 115 basis points to 5.75% while Dollar Tree compressed to 53 basis points to 6.50%. Family Dollar compressed 30 basis points to 6.85%. Dollar General accounted for the majority of the dollar store supply (82%) on the market.

“Throughout the course of the Covid-19 pandemic, investor demand in the dollar store sector increased to record levels,” adds Jimmy Goodman, Partner, The Boulder Group.

The primary contributing factor for the cap rate compression was a limited supply of new construction properties with investment grade tenants and long term leases. The dollar sector is mostly comprised of properties below $2.5 million. This price point contains the majority of 1031 exchange requirements adding further demand to the sector.

In the past, the dollar store sector traded at a significant discount to the entire net lease market. However, in the second quarter of 2021, the dollar store sector was priced only at a 9 basis point discount to the overall retail net lease market. In 2020, this figure was 73 basis points demonstrating the increased investor demand for the sector.

“The new store development pipeline will continue to make this asset class a popular target for 1031 investors,” John Feeney, Senior Vice President, The Boulder Group adds.

Dollar Tree is currently rolling out a new store format. Dollar Tree recently introduced a new combination store in 2021 which combines the concepts and product offerings of both Family Dollar and Dollar Tree stores into one building. Net lease investors will be carefully monitoring the success of these locations as the concept continues to grow across the country.

The net lease dollar store sector will continue to be active as investors are attracted to the strong credit tenants that this asset class provides. As dollar store retailers continue to perform well in all types of economic environments, investors of all classes will continue to seek out these investments. “New construction dollar stores will remain in the highest demand as they provide investors with long term and passive leases,” according to Blankstein. “The national expansion plans of the dollar store retailers combined with new store format rollouts should be able to keep supply levels high..”

To view the full report: https://bouldergroup.com/media/pdf/Net-Lease-Dollar-Store-Research-Report.pdf

About The Boulder Group

The Boulder Group is a boutique investment real estate service firm specializing in single tenant net lease properties. The firm provides a full range of brokerage, advisory, and financing services nationwide to a substantial and diversified client base, which includes high net worth individuals, developers, REITs, partnerships and institutional investment funds. Founded in 1997, the firm has arranged the acquisition and disposition of over $6 billion of single tenant net lease real estate transactions. From 2012-2020, the firm was ranked in the top 10 companies in the nation for single tenant retail transactions by both Real Capital Analytics and CoStar. The Boulder Group is headquartered in suburban Chicago.