Retail Net Lease Trends: Rising Cap Rates, Shifting Investment Strategies

Retail net lease markets are evolving as economic factors, rising cap rates, and changing investor behavior reshape consumer and investment trends.

Net lease retail cap rates have been climbing for the last nine consecutive quarters, ending 2024 at 6.6% an increase of 100 basis points (bps) since the low in Q4 2022, according to data from Real Capital Analytics. In 2024 alone, cap rates increased 60 bps year-over-year. Both the Mid-Atlantic and Midwest regions ranked the highest cap rates and highest jump at 90 bps year-over-year, followed by the Southwest.

While cap rates have increased across all sectors, drugstores saw the largest cap rate rise, according to CoStar Group data. The increase in capitalization rates for net lease retail assets can be attributed primarily to rising interest rates as borrowing costs escalate, and investors demand higher returns to justify their investments, leading to an upward adjustment in cap rates.

Additionally, the net lease market has experienced a decline in 1031 exchange activity. Historically, 1031 buyers have played a significant role in maintaining aggressive cap rates, often paying premiums for properties due to tax deferral benefits and transaction deadlines. The reduction in these buyers, combined with higher financing costs, has contributed to the upward shift in cap rates.

Net Lease Investment Sales Slow as Borrowing Costs Stay Elevated

Rising cap rates and higher borrowing costs have introduced volatility for net lease retail investors. According to data from RCA, annual investment sales for shops reached $20B in 2024, down 26.1% from the previous year. Quarterly investor activity ended on a sluggish note, with just $4.89B in retail transactions—a 7.4% quarter-over-quarter decline. January 2025 recorded $1.49B in transaction volume, already above 2021 and 2023 levels of $1.43B and $1.47B, respectively. While growth is noted, this data indicates that pockets of distress remain, particularly in sectors with weaker consumer demand or shifting retail footprints.

Asset Class Breakdown

Convenience Stores Maintain Strong Demand

Despite a flat year-over-year growth in 2024, convenience store foot traffic remains 17.2% above pre-pandemic levels (2019), according to Placer.ai. Leading chains such as 7-Eleven, Circle K, QuikTrip, Wawa, and Casey’s General Store continue to outperform competitors, largely due to store expansions, innovative product offerings, and loyalty programs.

• Cap rates for c-stores have moderately increased since 2022. In 2024, they increased to 6.59%, a 2 bps YOY change, and increased another 2 bps in January 2025 to 6.61%.
• The two top brands, 7-Eleven and Circle K, plan to open new locations. 7-Eleven has 600+ new locations planned over the course of the next few years, with 125 in 2025 and over 500 by 2027. Circle K’s parent company Couche-Tard plans to build 500 new-to-inventory (NTI) sites by 2028. These stores will target both rural and suburban markets.
• 7-Eleven is rolling out a new store prototype called “new standard,” which will revolve around more modern food choices and a streamlined customer experience.
• 7-Eleven also plans to close 400+ stores and conduct $520 million in sale-leaseback
• Couche-Tard has signed lease agreements for three Circle K distribution centers in the Midwest as part of a strategic effort to optimize the convenience store chain’s merchandise supply chain.
• Couche-Tard increased its acquisition bid for Seven & i Holdings to $47.2 billion, marking a potential record-breaking deal.

Discount Stores Lead Retail Growth

Retail visits to discount stores and dollar stores rose by 4.9% from January 2024 to January 2025, and a whopping 33% since pre-pandemic levels (2019), according to Placer.ai data. This reflects the growing demand for value shopping. Leading chains include Dollar General, Dollar Tree, Family Dollar, and Five Below.

• Dollar General is expanding across 4,800+ stores, with plans for 575 new locations and 2,000 full remodels.
• Dollar Tree announced 1,000 store closures and is considering a sale or spin-off of Family Dollar.

• Market Share: Dollar General and Dollar Tree together represent 9% of the dollar store industry.

Conclusion on Net Lease

The retail net lease market is undergoing a significant transformation as rising cap rates, shifting investment strategies, and evolving consumer behavior reshape the landscape. While higher borrowing costs and a decline in 1031 exchange activity have contributed to an increase in cap rates across all sectors, investors remain focused on acquiring well-positioned, income-producing assets in sectors with resilient demand, such as convenience stores, discount retailers, and essential service providers.