Asking Cap Charges Rise in QSR

NAIOP Survey Shows Deal Improvement Despite Rising Pessimism

In the second quarter, national supply caps in the single-tenant quick service restaurant (QSR) sector rose to 5.65%, which is a 30 basis point increase over the previous year according to the Boulder Group's Net Lease (QSR) report.

The cap rates for QSR properties rented by companies remained unchanged at 5.20%. The cap rates for QSR properties leased to franchisees rose by 15 basis points to 5.83%.

"OSR always does well because of the drive-through component," says Randy Blankstein, President of the Boulder Group.

While the sector performed relatively strong during COVID, Blankstein attributes the 30 basis point increase in QSR cap rates to the significant supply of franchisee-leased properties in the market

"People want to trim their portfolios and sell things that have shorter-term leases, (tenants with) less credit and secondary brands," says Blankstein. "Investors are also focusing on long-term leases with tenants with better credit."

COVID-19 has made 1,031 net stock market and private leasing investors more conservative, focusing on tenant loan and lease durations, according to The Boulder Group. In the second quarter, properties rented to companies were valued at a premium of 63 basis points compared to properties related to franchisees.

"The expectation is that the gap between corporate and franchisee QSR cap rates will widen further later in 2020," said John Feeney, senior vice president, Boulder Group.

Blankstein said cap rates have fallen for Chick-fil-A and McDonald's, national brands with company-backed leases. New Build McDonald & # 39; s and Chick-Fil-A properties continue to have the lowest cap rates in the sector (4.00% and 4.03%, respectively).

"When people want to buy Taco Bell, Burger King or KFC, they want the biggest franchisee," says Blankstein. "People don't want small franchisees because they are flocking to quality in a time like COVID."

In the second quarter of 2020, franchisee leasing properties made up more than 70% of the market. "Many QSR business models have changed due to Wall Street's asset-light model to focus on franchisee locations rather than corporate locations," says Blankstein. "The theory is that they are the brand and don't have to be at every stage of ownership of all properties."

Regardless of the company's support, COVID has shown that the QSR sector has value.

While many restaurants were forced to close their doors during the pandemic, thoroughfares helped most QSR operators limit the impact of reduced in-store restaurants on their businesses. Pass-throughs not only create convenience but also limit exposure to others.

According to Blankstein, the single tenant QSR sector will continue to attract investors.

"Everyone has seen driveways and mobile delivery services like UberEATS and Grub Hub have made QSRs COVID-resistant," says Blankstein. "Everyone understands that the passages are more critical than ever."


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