Q4 2024 Cap Rate Report
The fourth quarter of 2024 experienced an increase in investment sales compared to previous quarters. Prolonged economic headwinds due to high interest rates, inflation, economic uncertainty, and e-commerce disruption contributed to a slowdown in sales volume in previous quarters. Single tenant net lease (STNL) has shown resilience, especially in the quick-service restaurant, dollar store, and convenience store sectors. However, STNL has still experienced significant challenges, especially in the pharmacy and casual dining sectors, which have recently announced major store closures.
Despite the Federal Reserve’s decision to lower interest rates, the yield on the 10-Year U.S. Treasury yield has once again risen above 4% to 4.57% as of December 2024. This is unusual since the yield on the 10-year Treasury was always lower in the 100 days after the first rate cut in the previous seven cutting cycles by the Fed since the 1980s, according to JP Morgan. JP Morgan believes this seemingly paradoxical trend is due to stronger growth expectations and macroeconomic uncertainties. Economists initially predicted that the U.S. economy would grow by 1.2% in 2024, but that estimate more than doubled to 2.7% by the end of 2024. The robust growth puts upward pressure on yields as the expectation for more rate cuts by the Fed decreases. As for economic uncertainty, many questions are raised with regards to the Fed’s future actions as well as the potential inflationary trends that result from the tariffs that are implemented by the new Trump administration.