Cap Rates for Single Tenant QSR Properties Reach Historic Low – The Boulder Group

The Boulder Group announced the release of its Net Lease QSR Report today. In the second quarter national asking cap rates in the single tenant quick service restaurant (QSR) sector decreased to a new historic low of 5.26%, according to the 2021 Net Lease QSR Market Report. This represented a 39 basis point decrease when compared to the prior year.

“Cap rates for corporate leased QSR properties declined by 20 basis points to 5.00% while QSR properties leased to franchisees declined by 43 basis points to 5.40%,” says Randy Blankstein, President, The Boulder Group. “The primary contributing factor to the decline in cap rates is related to the increased investor demand for net lease properties with a drive-thru component.”

Demand for net lease QSR properties outpaced the overall net lease sector in the past twelve months. The premium associated with net lease QSR properties was 76 basis points in the second quarter of 2021 compared the prior year (60 basis points).

“Following the loosening of in-person dining restrictions related to Covid-19, properties with drive-thru still continue to command significant investor demand,” adds Jimmy Goodman, Partner, The Boulder Group. “This trend is expected to increase as tenants seek locations with drive-thru capabilities to facilitate pick up and third party delivery.”

Brands including Chipotle and Shake Shack have added drive-thru lanes to their newest concepts and other QSR veterans like Taco Bell have announced prototypes with up to four drive-thru lanes.

“The majority of the QSR sector is leased to franchisees,” John Feeney, Senior Vice President, The Boulder Group adds.  “However, those properties with a corporate backing command a 40 basis point premium over franchisee backed assets.”

There is a further premium associated with the upper echelon of credit backed tenants in the QSR sector. Investors view QSR brands Chick-Fil-A and McDonald’s as best in-class. Accordingly, these two tenants represent the lowest cap rates in the sector and even the overall net lease sector. In the second quarter of 2021, properties leased to Chick-Fil-A and McDonald’s had cap rates of 3.70% and 3.85% respectively.

The single tenant QSR sector will continue to garner demand as investors seek net lease investments with drive-thru capabilities in the lower end of the price spectrum ($1 – $3 million). “A bifurcation between corporate/large franchisees and smaller franchisees will continue as investors seek the security that larger guarantors offer,” according to Blankstein. One-off transactions will continue to be dominated by private and 1031 exchange buyers. Institutional investors will remain primarily interested in sale leaseback portfolios in order to achieve economies of scale.

To view the full report: https://bouldergroup.com/media/pdf/Net-Lease-QSR-Report.pdf

About The Boulder Group

The Boulder Group is a boutique investment real estate service firm specializing in single tenant net lease properties. The firm provides a full range of brokerage, advisory, and financing services nationwide to a substantial and diversified client base, which includes high net worth individuals, developers, REITs, partnerships and institutional investment funds. Founded in 1997, the firm has arranged the acquisition and disposition of over $6 billion of single tenant net lease real estate transactions. From 2012-2020, the firm was ranked in the top 10 companies in the nation for single tenant retail transactions by both Real Capital Analytics and CoStar. The Boulder Group is headquartered in suburban Chicago.