What cap rates do NNN properties trade at?

NNN property cap rates vary by tenant credit and lease term. Investment-grade tenants with 15+ year leases currently trade at 5.00–5.75%; investment-grade tenants with 10–15 year terms at 5.50–6.25%; national credit tenants at 6.00–7.00%; and regional or franchise tenants at 6.50–7.50%, according to CoStar Group. Drug stores trade at 5.25–6.25% on 20–25 year leases; dollar stores at 6.00–7.25% on 15-year terms.

How much management time does a NNN property require?

Single-tenant NNN properties require just 0–1 hours of management per month because tenants pay all operating expenses including property taxes, insurance, and maintenance, according to the National Association of Realtors. This compares to 15–20 hours/month for a 20-unit multifamily property and 8–12 hours/month for a multi-tenant retail center, making NNN the most passive form of direct real estate ownership.

What types of properties are common NNN investments?

Common NNN property types include drug stores (10,000–14,000 SF, 20–25 year leases, 5.25–6.25% cap rates), quick-service restaurants (2,000–4,500 SF, 15–20 year leases, 4.50–6.50% cap rates), dollar stores (8,000–12,000 SF, 15-year leases, 6.00–7.25% cap rates), and auto parts stores (6,000–8,000 SF, 15–20 year leases, 5.75–6.75% cap rates), per CoStar Group.

What are the biggest risks of NNN investing?

The four primary risks are: tenant bankruptcy (mitigated by focusing on essential retail, pharmacy, grocery, auto); lease expiration risk when above-market rents reset (mitigated by buying longer remaining terms and comparing contract rent to market rent); interest rate risk compressing cap rate spreads (mitigated with fixed-rate, term-matched financing); and obsolescence risk if the building's alternative use value is low.

What is the difference between NNN, gross, and modified gross leases?

In a Triple Net (NNN) lease, tenants pay base rent plus all property taxes, insurance, and maintenance costs. In a gross lease, the landlord pays all operating expenses and bundles them into a higher rent. Modified gross leases split expenses between landlord and tenant, often with the tenant paying utilities and janitorial while the landlord covers taxes and insurance.

How do I evaluate the credit quality of a NNN tenant?

Assess tenant credit using public ratings (Moody's, S&P, Fitch) for national tenants. For unrated tenants, request financial statements and calculate the rent coverage ratio (revenue ÷ rent). Ratios above 2.0x indicate strong ability to pay. Also evaluate the tenant's industry stability, number of locations, years in business, and parent company guarantees.

What happens when a NNN lease expires?

When a NNN lease expires, the owner faces re-leasing risk. If the tenant renews, cap rates typically compress due to reduced lease term. If the tenant vacates, the owner must find a replacement tenant and may need to invest in tenant improvements. Properties with below-market rents and strong locations typically see lease renewals at higher rates, increasing property value.

The Complete Guide to Triple Net (NNN) Lease Investing

Name: Triple Net (NNN) Lease Cap Rates and Property Type Benchmarks 2025–2026
Creator: Lornell Real Estate
License: https://www.lornellre.com/terms

Triple net (NNN) lease properties offer the closest thing to truly passive real estate income, requiring as little as 0-1 hours of management per month while providing predictable cash flow from tenants who pay all operating expenses. According to the National Association of Realtors, NNN properties leased to investment-grade tenants with 15+ year terms currently trade at 5.00-5.75% cap rates, delivering bond-like income with superior tax advantages and built-in inflation protection through contractual rent escalations.

Key Takeaways

- Passive Income Potential: Single-tenant NNN properties require minimal management, typically 0-1 hours per month, offering a highly passive investment.

- Predictable Returns: Investment-grade NNN properties with 15+ year leases currently trade at cap rates between 5.00-5.75%, providing stable income.

- Tenant Responsibility: A triple net lease obligates the tenant to pay all property operating expenses, including taxes, insurance, and maintenance, beyond base rent.

- Long-Term Stability: NNN leases commonly feature initial terms of 10-20 years, with options to extend total lease durations to 30-40 years.

- Tax Advantages: Investors can utilize NNN properties for depreciation and 1031 exchange eligibility, offering significant tax deferral benefits.

Definition

Triple Net (NNN) Lease is a commercial lease structure where the tenant is responsible for paying all property operating expenses, including property taxes, insurance, and common area maintenance (CAM), in addition to base rent.

Key Takeaway

Management time: 0-1 hours/month for single-tenant NNN vs. 15-20 hours for multifamily (National Association of Realtors)

Lease terms: Typical NNN leases run 10-20 years initial with options extending to 30-40 years total (CoStar Group)

Cap rate benchmarks: Investment-grade tenants at 5.00-5.75%; national credit at 6.00-7.00%; regional/franchise at 6.50-7.50% (CoStar Group)

Tax advantages: Depreciation, 1031 exchange eligibility, and potential for tax-deferred cash flow (IRS)

What Is a Triple Net Lease?

A triple net lease (NNN) requires the tenant to pay all property operating expenses in addition to base rent:

Net of property taxes
Net of insurance
Net of maintenance (CAM)

The landlord receives rent checks with minimal responsibilities.

NNN vs. Other Lease Structures

Expense	Gross Lease	Modified Gross	NNN Lease
Base Rent	Tenant	Tenant	Tenant
Property Taxes	Landlord	Varies	Tenant
Insurance	Landlord	Varies	Tenant
CAM	Landlord	Varies	Tenant
Roof/Structure	Landlord	Landlord	Varies*

*Some NNN leases are "absolute NNN" where tenant handles everything.

Why Investors Love NNN

1. Predictable Cash Flow

No expense variability. Your rent check remains the same regardless of operating cost fluctuations.

2. Minimal Management

Time Commitment Comparison:

Property Type	Hours/Month
Multifamily (20 units)	15-20
Retail center (multi-tenant)	8-12
Single-tenant NNN	0-1

3. Long-Term Leases

Typical terms: 10-20 years with options extending to 30-40 years total.

4. Credit Tenant Quality

Many NNN properties are leased to investment-grade tenants: Fortune 500 companies, national retailers, government agencies.

Understanding Cap Rates

Current NNN Cap Rate Ranges

Tenant Credit	Lease Term	Cap Rate Range
Investment Grade	15+ years	5.00-5.75%
Investment Grade	10-15 years	5.50-6.25%
National Credit	10+ years	6.00-7.00%
Regional/Franchise	10+ years	6.50-7.50%

What Drives Cap Rates

Lower Cap Rates: Investment-grade credit, longer term, strong location, rent increases

Higher Cap Rates: Weaker credit, shorter term, tertiary location, flat rent

Common NNN Property Types

Drug Stores

Metric	Range
Size	10,000-14,000 SF
Lease term	20-25 years
Cap rate	5.25-6.25%

Quick Service Restaurants

Metric	Range
Size	2,000-4,500 SF
Lease term	15-20 years
Cap rate	4.50-6.50%

Dollar Stores

Metric	Range
Size	8,000-12,000 SF
Lease term	15 years
Cap rate	6.00-7.25%

Auto Parts

Metric	Range
Size	6,000-8,000 SF
Lease term	15-20 years
Cap rate	5.75-6.75%

Due Diligence Checklist

Lease Analysis

Term	What to Look For
Lease term	Years remaining + options
Rent increases	Annual bumps (1.5-2.5% ideal)
Expense responsibility	True NNN or modified?
Termination	Any early termination clauses?

Tenant Credit Analysis

For private/franchise tenants, request:

Unit-level P&L
Franchisee financial statements
Rent coverage ratio (should be >2.0x)

Risks and Mitigation

Tenant Bankruptcy Risk

Mitigation: Focus on essential retail (pharmacy, grocery, auto)

Lease Expiration Risk

Mitigation: Buy longer terms; analyze market rent vs. contract rent

Interest Rate Risk

Mitigation: Use fixed-rate financing; match loan term to hold period

Obsolescence Risk

Mitigation: Consider building's alternative use value

"
"NNN properties remain the gold standard for passive income in commercial real estate. The combination of credit tenancy, long lease terms, and minimal management creates an income stream that closely resembles a bond but with inflation protection through rental escalations," says **Todd Lornell**, Principal & Founder, Lornell Real Estate

Lornell Real Estate assists investors in sourcing NNN investment opportunities across Central Massachusetts and New England. Contact us to discuss your investment criteria.

Warning

Limitations: Cap rates, pricing, and transaction volume cited reflect market-level averages at the time of publication and may not apply to individual properties. Property values depend on asset-specific factors including condition, tenant credit quality, lease terms, location, and financing structure. Tax rules (including 1031 exchange provisions, capital gains rates, and depreciation schedules) change with legislation. This article does not constitute investment, tax, or legal advice. Consult a qualified CPA, attorney, and commercial real estate broker before making transaction decisions.

Sources & References

CoStar
CoStar Group
IRS
National Association of Realtors

This article cites data from the sources listed above. For the most current figures, consult the original publications directly.

Data current as of publication date. Market conditions, rates, and regulations may have changed. Consult a qualified commercial real estate professional before making investment decisions.

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