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After several years of volatility, the net lease retail market has finally found a more stable footing. Interest rates have leveled within a clearer range, giving investors greater confidence in underwriting assumptions. While transaction activity remains selective, pricing now reflects today’s borrowing environment – rather than prior-cycle conditions.
So far in 2026, buyers and sellers are re-engaging with greater clarity and discipline.
Adam Scherr, Managing Director at Sands Investment Group, specializes in the acquisition and disposition of net lease investments nationwide. We sat down with Adam Scherr to get his take on how interest rate dynamics, capital discipline, and asset-level performance are shaping the net lease retail market today, and where he sees the most opportunity and risk in the months ahead.
How are Interest Rates Shaping the Market?
Greater stability in interest rates, rather than rate cuts alone, is supporting renewed transaction activity. However, the market is still adjusting as buyers and sellers align expectations around pricing. Buyers need confidence that today’s financing environment is stable before committing capital.
“The slowdown over the last few years was driven by a disconnect,” Scherr explains. “Pricing was anchored to a lower-rate environment. Anything that reduces the spread between the buyer’s cost of capital and the seller’s expectations allows transactions to move forward. What matters most is that we are operating within a clearly defined cost-of-capital framework.”
As rate stability holds:
- Institutions are deploying capital more competitively.
- Private capital is re-entering the market selectively.
- REITs, developers, and sale-leaseback participants are increasing activity.
- Expansion-minded retailers, particularly discount and value-oriented operators, continue growing store counts.
The market is not moving all at once. Instead, capital is returning selectively, guided more by discipline than momentum.
What is Still Constraining Activity?
Although rates have stabilized, broader economic uncertainty continues to influence capital allocation. Regulatory pressures in major coastal markets, particularly around rent control and multifamily policies, have reshaped institutional deployment strategies.
Additionally, pricing gaps remain in parts of the market. Some sellers continue to reference previous pricing levels, while buyers are underwriting based on today’s financing costs and expected returns. Closing that gap requires realistic expectations on both sides. In the meantime, buyers are evaluating deals with scrutiny: assumptions are closely examined, due diligence timelines are extended, and execution risk is carefully evaluated.
Developers are facing similar pressure. Higher construction costs and investor preferences for fully stabilized assets have increased execution risk for the development side.
Which Assets are Outperforming in Today’s Environment?
The clear separation in asset quality that began to emerge in 2025 has become more pronounced in 2026.
Retail properties that are priced according to today’s capital framework are attracting meaningful interest. Categories demonstrating stability include discount retail, auto-related retail, and quick service restaurants. As a result, investors are continuing to focus on these retail categories as they offer more predictable performance in today’s market.
How are CAP Rates Adjusting in 2026?
Cap rates for net lease retail have largely stabilized, though that stability varies by asset quality.
“For well-performing assets, we are generally seeing cap rates in the mid-6 percent range,” Scherr explains.
However, the market is increasingly separating into two distinct segments:
- High-quality assets in strong locations with healthy rent coverage continue attracting competitive interest and may see cap rate compression.
- Underperforming assets in weaker locations, particularly those with elevated rent levels, are trading at higher cap rates or struggling to transact.
Clear performance metrics are driving pricing, with durable assets attracting capital and weaker properties facing wider spreads.
Where is Capital Flowing and Why?
Where capital is being directed is becoming more deliberate, shaped by relative volatility across alternative sectors and renewed interest in income-focused net lease assets. As a result, institutions have greater flexibility within their cost-of-capital parameters.
“Based purely on cost of capital, institutions can be more aggressive than they have been since mid-2023, in some cases by 100 basis points or more,” Scherr notes.
On the supply side, the lease structure remains a defining variable. Many assets currently on the market reflect either pre covid lease structures or COVID-era leases that incorporated higher rents during the strong retail environment of 2021 and 2022. “Many buyers are prioritizing assets with pre-COVID rents because they view that as built-in downside protection. The question the market is still working through is whether COVID-era rent growth can be consistently supported by sales over the long term.”
What is Happening in the 1031 Exchange Market?
The 1031 exchange market is showing a clear divide by transaction size, with smaller deals moving more easily than mid-market transactions.
Momentum remains strongest in:
- Sub-2-million-dollar transactions
- Lower-leverage structures
- Higher-yielding smaller assets
These smaller deals tend to offer greater flexibility in today’s financing environment, which has supported steadier execution. Mid-market transactions between 4 million and 8 million dollars, however, continue to face tighter financing conditions and more persistent pricing friction.
“We expect 1031 activity to increase modestly as stability continues,” Scherr adds. “However, pricing gaps in the mid-market will likely persist.” Taken together, the 1031 market remains active, but execution is far smoother at smaller price points than in the mid-market.
What will Define Net Lease Retail in 2026?
The defining theme of 2026 is disciplined execution.
Technology and transparency have elevated underwriting standards. Investors now leverage traffic analytics, credit card data, and AI-enabled performance modeling – all before touring a property.
Location has also returned to the conversation as a primary driver of value, with investors looking beyond national credit to assess local fundamentals.
“Local trade area performance matters again,” Scherr notes. “Investors are underwriting based on comparable store performance and market-level data, not solely national credit.”
Taken together, these dynamics reflect a broad return to disciplined underwriting, with valuation driven more by trade-area performance and asset-level fundamentals.
“You cannot sell a weak asset through narrative alone,” Scherr observes. “Not because buyers are harsher, but because the data is clearer.”
Investors should expect:
- Strong competition for prime assets
- Ongoing pricing pressure on weaker properties
- Gradual improvement in 1031 participation
- A more data-driven transaction process
The market is not reverting to the prior-cycle conditions. Instead, it is functioning within a more transparent and disciplined framework.
How Should Investors Position For this Cycle?
Net lease retail in 2026 reflects a market that has regained its footing. Clarity around the cost of capital has restored more consistent pricing, and buyers and sellers are moving closer to alignment, even if modest gaps remain.
For investors who understand today’s market realities, there is still real opportunity, particularly in well-located assets with proven performance. The difference is that success now depends less on momentum and more on preparation, underwriting discipline, and local insight. In this environment, thoughtful execution is what separates transactions that trade from those that stall.
Ready to discuss how today’s market conditions impact your portfolio?
Connect with a SIG Advisor.
