Investors are finding quick-service restaurants to be easily accessible as a niche market that has a price point significantly less than other single tenant net lease sectors. The average sale price is roughly $2.5 million. At this price point, like many other single tenant net lease sectors, turbulent financial markets present less of a headwind, with most transactions being at a low enough price point that debt markets, and the present uncertainty that comes with those, are not a major consideration facing investors.
The average observed cap rate on QSR transactions is about 62 basis points lower than the average single tenant net lease transaction average of 5.46%, sitting at about 4.84% currently. A true testament to the resilience of the QSR sector in times of economic uncertainty is that it’s not dependent on the rising 10-Year Treasury yield, which often correlates with cap rates. Despite recent volatility, cap rates have compressed in the net lease arena. Overall STNL and QSR cap rates seemed to stay in lockstep with each other, both seeing a slight compression in bases points from Q4 2022.
The average cap rate over the past year for STNLs dropped 19 basis points from 5.65% to 5.46%. The average cap rate over the past year for QSRs dropped 14 basis points from 4.98% to 4.84%. The average cap rate per tenant in the past year was Burger King at 4.69%, Taco Bell at 4.69%, KFC at 4.70%, Starbucks at 4.72%, and Chick fil A at 3.80%. The average cap rate per term remaining in the past year were Taco Bell at 4.73% for less than 10 years and 4.64% for greater than 10 years as well as Burger King at 5.35% and 4.81%; KFC at 4.82% and 4.55%; Starbucks at 4.73% and 4.46%; Burger King at 5.35% and 4.81%; and Chick fil A at 3.66% and 3.92%.
Tax-deferred 1031 exchange money is a major driver in the overall NNN market causing the overall uptick in cap rates, however, well-located QSRs in strong and growing markets have been a bit sheltered from this trend. Averaging over 50 basis points lower on the cap rate compared to other single tenant deals on the market, QSRs are showing an overall rise in mitigated risk in the last six months across the board, resulting in cap rates going up, just not as high or as quickly as other competing single tenant assets.
