The Current Restaurant Investment Landscape in 2025
How many times have you had a conversation about 1031 Exchange on a commercial property, and someone says “Let’s think Chain Restaurants as an option”?
More often than you might expect in 2025. Quick-Service Restaurants (QSRs), which include fast food chains and drive-thru concepts, thrive on high-traffic locations with predictable revenue streams, making them one of the key industries that prioritize NNN leases..
The restaurant sector has proven remarkably resilient to fluctuations in the market, with the United States Fast Food & Quick Service Restaurant Market size valued at US$ 248.8 billion in 2024 and anticipated to rise at a CAGR of 3.74% from 2025 to 2033. This sustained growth creates excellent opportunities for 1031 exchange investors seeking stable, income-producing properties.
A Brief History Of 1031 Exchange
The 1031 Exchange was included in the IRS code back in 1921. Section 1031 of the Internal Revenue Code states that, if a taxpayer sells a property (such as a restaurant property), and then gets another “like-kind” replacement property, then taxation on the profits of the sale can be deferred.
The properties, under these conditions, are exchanged, and the owner does not get any cash in the transaction. In simple terms: no cash, means no tax.
How does a 1031 Exchange work with properties?
The tax on the return of the relinquished property (the first real estate asset) is deferred to a date when the like-kind replacement property is sold without a further exchange.
Learning from McDonald’s Real Estate Strategy
Many people don’t realize that McDonald’s doesn’t really make that much money from selling burgers. A former Chief Financial Officer of McDonald’s stated: “We are not technically in the food business, but rather in the real estate business.” The reason behind selling affordable hamburgers is that they are the best producers of income and create opportunities for tenants to pay rent!
What’s not widely discussed is that foot traffic increases property value. By creating a business model that generates consistent customer flow, McDonald’s has found the perfect property appreciation mechanism—and has been using this model for decades.
McDonald’s strategy involves three key steps:
- Its subsidiary company finds attractive commercial property deals
- Locations appreciate thanks to steady traffic and cash flow
- It collects rents from franchise locations
As a restaurant property investor, you’ll want to focus on finding properties who’s franchisees are poised for expansion and where you can capture both NNN cash flow AND property appreciation.
Restaurant Properties: Prime 1031 Opportunities in 2025
The Current Market Advantage
For the first time in two years, the single-tenant NNN lease property market has experienced a notable increase in sales—a promising signal that conditions may be shifting in favor of buyers. This creates an ideal environment for 1031 exchange investors.
Strong Industry Performance
The restaurant sector continues to show remarkable strength. QSR industry trends in 2025 include digital transformation, menu diversification and enhanced delivery options, making these properties increasingly valuable investments.
Key Benefits of Restaurant NNN Properties:
- Tenant Reliability: Fast food restaurant properties can deliver solid commercial property investment returns through reliable tenants and strong tenant prospects
- 1031 Exchange Compatibility: Restaurant properties qualify for like-kind exchanges, making your next investment opportunity as close as your nearest drive-through
- Tax Deferral Benefits: 1031 exchanges allow you to defer taxes on capital gains when properly structured into new restaurant properties
Expanding Chain Options
Consider established chains like Taco Bell, Wendy’s, KFC, Chick-fil-A, etc. Many of these leases are backed by strong corporate guarantees, with McDonald’s and Starbucks both offering impressive credit ratings of BBB+ from Standard & Poor’s.
What Makes A Good 1031 Exchange: 2025 Market Conditions
Current Cap Rate Environment
Cap rates currently range on average around 5.5% to 6.25% for longer term leases, reflecting the new normal that both buyers and sellers are adjusting to. This represents a significant shift from the ultra-aggressive cap rates of recent years.
Interest Rate Environment
Commercial mortgage rates for NNN lease loans in 2025 remain competitive, with rates around 6.0%-6.5%, encouraging more buyers to enter the market after the higher rates of 2024.
Key Investment Metrics to Consider:
- Lease terms between 10 and 20 years
- Average rent increases of 10% every 5 years
- Lease guarantees from franchisees (where you need to evaluate the strength of the tenant)
- Cap rates ranging from 5.5% to 6.25%
Remember: these are market averages. You’ll need to analyze each property’s specific numbers before purchasing.
Picking the Right Location in 2025
Fast food chains consider several critical variables when selecting locations:
Traffic Analysis: Current volume taking into account ingress/egress
Demographics: Local population size, target market density, and growth projections
Safety Profile: Police reports, community safety perception, and trending data
Business Environment: Nearby office/business locations and lunch break accessibility
Visual Appeal: Area aesthetics for walk-up and drive-through customers
Technology-Driven Site Selection: Many organizations now use advanced mapping and business intelligence platforms to evaluate nearby retail development, public transportation access, and neighborhood demographics. This data-driven approach helps identify promising locations before they become obvious to competitors.
Securing Funding in Today’s Market
Restaurant properties typically range from $1 million to $3 million. With current market conditions, securing proper funding is crucial for submitting credible Letters of Intent (LOI).
Current Financing Landscape
The industrial sector continues to perform strongly in the NNN lease market, with industrial properties receiving attractive commercial mortgage rates due to high demand.
Restaurant properties with strong tenants in prime locations similarly attract favorable financing terms.
Many selling agents prioritize offers from reputable Buyer’s Agents known for sending properly funded offers. Address funding early in your process to avoid delays that could cost you the deal.
The Role of Qualified Intermediaries in 2025
Every 1031 exchange requires a Qualified Intermediary (QI). Due to legal limitations, your QI cannot be your current attorney, accountant, or investment broker—you need an independent third party.
The QI Process:
- The taxpayer assigns sale and purchase rights to the QI
- The QI can transfer title of both relinquished and replacement properties
- The QI receives and holds sale proceeds in trust/escrow
- Property identification must occur within 45 days
- The exchange must close within 180 days of the original sale
Critical Timing Requirements:
- 45-day rule: Identify replacement property within 45 days
- 180-day rule: Complete the exchange within 180 days
- 200% rule exception: Can identify multiple properties up to 200% of sold property value
Working with Buyer’s Agents: Your Competitive Advantage
At Westwood, we’ve seen a rise in all-cash purchases, signaling that more investors are turning to NNN leases as a reliable and lucrative investment strategy.
The complexity of 1031 exchanges with restaurant properties requires experienced guidance. Buyer’s agents provide this expertise at no cost to you—they split commissions with selling agents, with both paid by the seller.
Our 2025 Process:
- Needs Assessment: We evaluate your budget, cash flow requirements, and location preferences
- Market Research: We compile a shortlist of high-potential properties within your parameters
- Due Diligence: We handle legal and financial process requirements
- Offer Strategy: We analyze numbers and submit competitive Letters of Intent
- Deal Execution: We navigate the closing process while you gain property ownership
Market Advantage: Our established relationships mean selling agents know our Letters of Intent represent serious, funded offers. We often win deals even against higher bids due to our reputation for successful closings.
2025 Market Outlook and Final Considerations
Market Trends Favoring Restaurant Investments
Interest rates will continue to fluctuate, creating an unpredictable environment. Despite this, 1031 transactional volume is expected to increase due to tax deferral benefits.
Key 2025 Factors:
- Buyer’s Market Conditions: Growing inventory and yields, up from 2023-2024
- Technology Integration: Enhanced customer experience through mobile ordering, AI-driven systems, and automated operations
- Essential Service Positioning: Essential services (healthcare, grocery, pharmacies) remain resilient, while discretionary spending (restaurants, retail) may fluctuate with economic downturns
Investment Strategy Considerations:
Focus on high-credit tenants and industries less affected by inflation. E-commerce-resistant sectors such as fast food, medical offices, automotive services, and discount retailers like Dollar General have demonstrated strong performance.
Ready to Take the Next Step?
The 2025 restaurant NNN market offers compelling opportunities for 1031 exchange investors. With competitive cap rates, improving transaction volume, and strong industry fundamentals, now may be an ideal time to add restaurant properties to your investment portfolio.
When you work with experienced Buyer’s Advisors like Westwood we understand both the restaurant industry and 1031 exchange requirements can provide the expertise needed to identify and secure profitable investments in this dynamic market.
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Westwood Net Lease Advisors has made every attempt to ensure the accuracy and reliability of the information provided. We are not lawyers, accountants (CPAs), or certified financial planners, nor is the information herein considered legally-binding legal advice, tax guidance, or financial counsel.
