Out of the pandemic has come higher consumer demand for drive-thru services at our most familiar fast-food restaurants, such as McDonald’s, Taco Bell, and KFC, and expanded drive-thru options at other quick-service restaurants (QSRs), like Starbucks and Chipotle. This demand has created a surge in NNN investment opportunities and a stronger-than-ever desire to purchase these asset types.
The Pandemic-Driven Profitability of Drive-Thru-Only Fast Food & QSRs
For the fast-food and QSR brands we know and love, like Burger King, McDonald’s, Chick-fil-A, Starbucks, and KFC, what began as a temporary, drive-thru-only COVID-19 business model has turned into an updated, omnichannel business strategy, resulting in streamlined service and greater profitability.
Since the extremely convenient, fast-food and QSR touchless take-out option has all but leveled the popularity of eating-in, major brands are not re-opening certain indoor locations – some not at all, others just not yet. Where possible, they are adding extra drive-thru and online-order pickup lanes and some have added walk-up windows where additional drive-up lanes are not an option. All major brands have adopted technology and AI in some form, with extremely positive results from mobile app ordering and curbside delivery.
Even before COVID-19, many of the fast-food drive-thrus had significantly higher volumes than their dine-in restaurants. Take Starbucks for example. The company was already spearheading the drive-thru-only business model with success. Now, Starbucks Co. has decided to permanently close many indoor cafes, add more drive-thru lanes to existing locations, and build more drive-thru-only properties. According to Forbes, “the company has reported better than expected earnings in each of the last four quarters, while revenues beat consensus for two of the last four quarters.”
Though our favorite fast-food establishments and QSRs were already on the precipice of creating apps and online ordering, the pandemic accelerated the implementation of smart technology and AI. McDonald’s now uses AI to identify when someone using their app comes near a property. This technology allows staff to get an order ready just as the customer arrives, which has paid off, reducing service speed by 30 seconds in 20201.
Though food costs and hourly wages have increased significantly over the past year, these savvy brands have adjusted their menus and messages to fit consumer demands and managed to stay one step ahead of the pandemic uncertainty, while remaining profitable.
During the pandemic, drive-thrus had a 25% to 35% increase in sales and continue to have momentum1. In October 2020 alone, drive-thru sales increased 24%, according to NPD Group Inc.
QSR Triple Net Investor Opportunities in 2021–2022
Investment-grade fast-food and QSR corporations have discovered the overall operating costs to run an indoor dining establishment are exceedingly higher than providing the same service with drive-thru lanes or curbside pickup options, therefore, they are adding more drive-thru lanes where possible. These additional drive-thru lanes can increase a property’s value, adding a 10–20% premium to the rent.
Fast-food restaurants and QSRs continue to add locations on parcels of land with plenty of room for drive-thru lanes, while some are opening drive-thru-only outlets, creating NNN investor opportunities. These brands include but are not limited to McDonald’s, KFC, Dunkin’ Donuts, Shake Shack, Chipotle, Chick-fil-A, Taco Bell, and Starbucks.
According to McDonald’s Corporation, its company-owned stores have gone from 19.1% in 2012 to 7% in 2020. McDonald’s is expected to reduce direct ownership of stores even more in the future, paving the way for NNN investors to purchase either existing stores or new construction properties.
Investment-grade, fast-food and QSR companies know they must show unit and sales growth to keep their credit investment-grade ratings and attract investors and capital, and they are succeeding. In fact, experts predict the fast-food and QSR industry will experience a compound annual growth rate of 7.5% between 2020 and 20242.
Restaurants with drive-thru lanes are seeing their values increase as the coronavirus pandemic forced social distancing rules and the closure of indoor dining. – The Wall Street Journal
Buying a NNN Fast-food Property in an Exceptionally Tight Market
How do you acquire one of these highly sought-after fast-food and QSR properties when they’re selling at record pace and supply is limited?
1. How to Overcome Low Supply
Just as with other investment-grade NNN lease properties, the market for fast-food and QSR properties is extremely tight. Part of the reason is low supply. The pandemic slowed the building of new locations and of those that have resumed building, some are addressing new permitting for additional drive-thru lanes. They are moving forward, but they are basically a year behind in the number of new locations. Keep an eye on the market daily for awareness of when a new construction or an existing drive-thru property becomes available, and make sure you’ve completed all the upfront work, so you are ready to make an offer immediately.
2. How to Overcome High Demand
The main reason it is difficult to find a fast-food and QSR drive-thru property for sale is high demand. Stock market investors are increasingly interested in these more reliable investments and entering the market ready to buy. Commercial real estate investors with high-maintenance, less-reliable properties are also in the mix, using the 1031 exchange for the stability and guaranteed income of single-tenant triple-net lease, NNN ground lease, and double-net plus (NN+) lease investments. Therefore, the most reliable, and possibly the only way right now, to buy a fast-food or QSR drive-thru property is to engage a specialized buyer’s advisor.
To Wrap it Up – Drive-thru NNNs Are a Great Investment Option
As we continue in a pandemic market and all signs point to a permanent shift in drive-thru operations, purchasing an investment-grade NNN drive-thru could be a great option for you, whether you are an experienced NNN investor or new to the market. It is important to note, since drive-thru investment opportunities are highly desirable to all types of investors, the majority are sold through brokers and developers directly to pre-qualified buyers who are working with a buyer’s advisor. Available properties are either not advertised on the open market, or if they are, they tend to sell so quickly, so by the time you see a listing, the property is likely to be under contract.
At Westwood Net Lease Advisors, our advisors are well-known in the industry with a nationwide network of sellers, brokers, and developers. We typically know when a property is coming up for sale before it’s listed, and with any available property, provide a buyer’s first-right-of-refusal advantage. We’re here to help you get the most ideal NNN property for your goals and make the entire process straightforward. Our consultations and buyer representation – from before your property search through closing and beyond – are free. Be sure to contact us today for more information. 314-997-5227
