Market Reports & Research Hub

Q3 2026 Market Summary

Overall single-tenant net lease cap rates increased 10 basis points to 6.92% in Q3 2026 (Boulder Group), the second consecutive quarterly increase and the highest level in over a decade. Retail cap rates rose 9 bps to 6.69%, office increased 10 bps to 8.00%, and industrial gained 3 bps to 7.28%. The Fed raised the federal funds rate 25 bps to 3.75–4.00% at its September meeting — its first hike since 2023, approved unanimously. The 10-Year Treasury climbed from the mid-4% range to above 5.00% by quarter-end, reaching ~5.31% in early October, the highest since 2002. CPI held at 3.4% in August (core at 2.4%), but PCE remained elevated with core at 3.0%. H1 2026 CRE transaction volume totaled $233.6B, up 14.7% YoY. CMBS 30+ day delinquencies rose to 7.7% in September (KBRA), with the conduit distress rate at 12.3%.

Cap Rate Expansion by Tenant Category

Cap rate expansion in Q3 was broad-based but uneven. The drug store sector saw the largest increase at 9 bps to 7.94%, driven by continued Walgreens credit concerns. Corporate QSR cap rates rose 5 bps to 5.90% while franchisee QSR increased 2 bps to 6.87%. McDonald's and Chick-fil-A ground leases remained the lowest in the sector at 4.50%. Dollar stores increased 3 bps to 7.52%. The auto sector (parts, service, collision) rose 2 bps to 6.47%. Corporate casual dining increased 3 bps to 6.60%. Among individual tenants, Wendy's posted the largest increase at 15 bps to 6.00%. The 100% bonus depreciation restoration continued to support private buyer demand for asset classes like convenience stores and auto service.

Supply, Demand & Investor Trends

Net lease property supply declined 0.7% QoQ to 5,754 properties in Q3, after a 12.5% increase in Q2. Retail supply fell 3.7% to 4,289 properties, while office increased 6.2% to 703 and industrial surged 11.9% to 762. Bid-ask spreads widened for both retail and industrial, each increasing 3 bps to 25 bps, while the office spread held at 50 bps. Private capital and family offices continue paying up for long-term credit tenants, while leveraged investors are far more selective on short-term product. With permanent financing now generally priced above net lease cap rates, additional pressure is building on leveraged buyers and larger price-point assets. CBRE forecasts full-year 2026 CRE investment volume at $562B (+16% YoY). The flight to credit quality remains the dominant theme.

Q4 2026 Outlook & Risk Factors

The Fed projects a 4.1% federal funds rate by year-end, with markets expecting an additional hike at the December meeting. Net lease pricing is resetting to a higher cost of capital rather than waiting for relief. Q4 traditionally sees higher transaction volume as funds fill yearly allocations, but rising Treasury yields and rate-hike expectations may temper that seasonal pattern. Net lease cap rates do not move in lockstep with interest rates — property fundamentals, tenant credit, lease term, and investor demand all drive pricing independently. The NNN spread to the 10Y Treasury has compressed to roughly 160–190 bps, versus ~213 bps in Q2, signaling that cap rate expansion has lagged the Treasury move and more upward pressure may follow. Investors are expected to prioritize tenant financial strength, long lease terms, and embedded rent escalators when underwriting opportunities.

Q3 2026 marks a clear inflection point for the NNN market: cap rates at 6.92% have reached their highest level in over a decade as the 10Y Treasury breached 5% and the Fed resumed hiking. The cap rate expansion was broad-based — retail, office, and industrial all moved higher — but the divergence between credit tiers has widened further, with ground leases from McDonald's and Chick-fil-A still trading at 4.50% while drug stores pushed near 8%. H1 transaction volume of $233.6B (+14.7% YoY) shows continued deal flow, but the Q4 seasonal surge may be muted by financing costs now exceeding net lease cap rates for many buyers. Private capital and family offices, supported by 100% bonus depreciation, are the marginal buyer for sub-$5M product. The data demands selectivity: investors who underwrite to tenant credit quality, long lease terms, and embedded escalators will find the best risk-adjusted returns in this repriced environment.

Research and analysis on this page are for informational purposes only and do not constitute investment, financial, or tax advice. Forward-looking projections are estimates based on current market conditions and may not reflect actual outcomes. Data should be verified with primary sources before use in investment decisions. Past performance does not guarantee future results.