The Quick Service Restaurant (QSR) sector is comprised of a variety of fast food concepts ranging from the well-known brands like Chick-fil-A and McDonald’s, to smaller chains such as Raising Cane’s and Steak N’ Shake. This report takes a look at the sector in-depth, providing an analysis of the past twelve months of data.
The QSR offers investors an attractive price point, with the average sale price for the past 12 months at about $2.1M and an average cap rate of 5.74%. Cap rates for the QSR sector have stayed very similar the past few quarters, signaling some stability.
The buildout between fast food properties and fast casual can be similar allowing tenants to be easily replaced should their leases expire or they vacate prematurely. It does seem that outparcels could accommodate more variety as it seems fast food retailers will most likely be in an outparcel location instead of an in-line one in more suburban/rural locations. QSRs tend to follow traditional real estate principals of location, location, location which also adds to their attractiveness.
Cap Rates by Tenant
Four of the largest tenants in the sector: Burger King, McDonald’s, Chick-fil-A and Bojangles, offer long-term investment-grade leases with either corporate or franchisee guarantees. Cap rates from quarter to quarter don’t offer too much change, especially with Bojangles having no change and staying at a 6.11% cap, which was the highest for this quarter, and Chick-fil-A was averaging the lowest rate at 4.30%.
Cap Rates by Term Remaining
Looking back, we can see that the number of years remaining on a lease has a direct impact on the cap rate depending on the tenant, except for Bojangles whose cap rate was 6.11% no matter the remaining term. Chick-fil-A actually increased with longer terms with a 4.32% compared to 4.30%. This is most likely a result of a higher premium and value on Chick-fil-A compared to other tenants.
Cap Rates by Lease Type
Which type of lease a tenant is signed to can also make a vast difference in the cap rate of a property. Depending on how much an owner is responsible for the structure and maintenance can have a major effect on price. This is why we can see higher cap rates coming from NNN leases at 5.80% overall and 5.65% with 10+ years remaining versus NN leases that were averaging 5.69% and 5.57% respectively. Ground leases totally absolve the owner of maintenance or upkeep which is more of a premium, causing those rates to be lower.
Cap Rates by Region
The region in which the QSR property is located can have a drastic impact on its traded cap rate. Looking at our data, properties in the South and South East (6.18% and 6.12% respectively) were significantly higher than their counterparts in the West and other regions. California’s premium market traded at the lowest cap with a 4.59% average.