Fast food and quick service restaurant (QSR) brands, such as Taco Bell, Starbucks, Dunkin’, McDonald’s, and KFC, have evolved to serve consumers more efficiently with artificial intelligence (AI), less overhead, and scaled-down menus, increasing sales. To keep customers coming back for more, these multibillion-dollar corporations continue to build new, more technologically advanced locations across the US, providing the opportunity for high-quality, reliable, passive triple net (NNN) lease investing.
For these reasons and more, Westwood Net Lease Advisors has selected the fast food and QSR asset class as our NNN Tenant of the Quarter, Q2 2023. Keep reading to determine if a fast food NNN investment is in your future.
As of 2022, the fast food industry’s market size, measured by revenue, was $331.41 billion and continues to see 2% annual growth.
Fast Facts About NNN Fast Food & QSRs — Is Expansion Slated to Continue?
Since 2019, the number of adults who eat fast food daily has increased from 50 million to 84.8 million, and most Americans eat fast food one to three times a week, spending an average of $1200 a year per person.
Since the pandemic, this popularity has come from the ease with which consumers can get their food via mobile apps, online ordering, curbside pickup, self-ordering kiosks, more drive-thru lanes, and delivery services. Customer rewards programs and mobile apps are also helping to drive repeat sales.
According to QSR Magazine, year-over-year sales growth for quick service and fast casual restaurants was up 5.2 percent in October 2022. Third and fourth-quarter sales growth was largely due to an increase in menu prices, which were raised to offset inflation. Ironically, this increase resulted in a higher average check size and earnings.
Some of the most popular fast food and QSR brands, such as Taco Bell, Starbucks, and Dunkin’, continue to see record sales and store openings.
In Yum! Brand Inc.’s Q4 2022 earnings report, David Gibbs, CEO, said, “2022 was a landmark year for Yum! as we beat our own industry record for unit development, opening an incredible 4,560 gross new units, including 997 gross new KFC restaurants during the Q4, and 253 gross new Taco Bell restaurants,” all while extricating from Russia.
Starbucks, with over 17,000 North American locations, opened 763 net new stores in Q4, ending the period with 35,711 stores globally: 51% company-operated and 49% licensed. In the 2022 year-end earnings report, Howard Schultz, Interim CEO said, “Our Q4 results demonstrate early evidence of the success of our US Reinvention investments. Reinvention will touch, and elevate, every aspect of our Starbucks partner, customer, and store experiences, and ideally position Starbucks to deliver accelerated, sustainable, long-term, profitable growth and value creation in 2023.”
Dunkin’, formerly Dunkin’ Donuts, is second to Starbucks in the number of US coffee-house locations with 9,538 stores in 46 states. Inspire Brands, which owns Dunkin’, has plans for westward expansion, as most restaurants are in the eastern half of the US. In just three years, Dunkin’ has opened 1000 Next Generation stores, a model with more modern décor, a front-facing bakery case, and innovative technology.
Most fast food restaurants and QSRs are slated for growth in 2023, creating NNN lease investment opportunities that provide steady, income-producing investments in an unsteady economy.
NNN Quick Service Restaurants in 50 States + US Territories
As fast food brands and quick service restaurants prioritize development, this provides a great selection of triple net lease commercial properties for the investor who wants a stable monthly income with no or very minimal landlord involvement and the opportunity to diversify by location, tenant, lease type, and restaurant style.
At the start of 2023, there were 201,865 fast food and QSRs in America. These are some of the top NNN lease fast food and QSRs by the number of US locations.
- Starbucks: 17,285
- McDonald’s: 13,438
- Dunkin’: 9,538
- Taco Bell: 7,772
- Burger King: 7,257
- Wendy’s: 5,984
- KFC: 3,889
- Chick-fil-A: 2,600
10 Reasons Why Fast Food & QSRs are a Top Net Lease Investment Opportunity
Triple net lease fast food properties are worry-free, income-producing investments that are recession-proof, internet-proof, and pandemic-proof, and easy to own across the nation, no matter where you live.
- Recession-proof: essential fast food and QSRs perform well in any economy, providing reliable income.
- Absolute NNN leases: many fast food restaurants for sale typically operate with absolute triple-net leases, which frees the landlord from any responsibility or management costs.
- Long-term leases: tenants typically operate with 10–20 year, guaranteed leases, ensuring steady income for years to come.
- Hedge against inflation: most often, there are rent increases built into the lease with extension options, so inflation and any other costs are covered, and you can opt to keep your fast food NNN for many years beyond the original lease term.
- Tangible, valuable assets: these CRE investments are tangible assets bolstered by their high-quality, underlying real estate.
- Budget-friendly: fast food and QSRs come in various price points for all types of investors, but they are usually between $1.5 and $4.5 million.
- Comparable IRR: with tax opportunities and other benefits, you have the potential to earn a 7–10% internal rate of return (IRR).
- 1031 exchange: NNN lease properties make a wonderful trade for a high-maintenance or underperforming property.
- Balance risk and reward: Owning several different fast food assets around the nation balances risk and reward and creates a healthy real estate investment portfolio.
- Financing and mortgage: Investment-grade tenants with reliable sales figures tend to be more easily mortgageable with better terms than traditional commercial real estate.
How do You Know if a Fast Food Restaurant is a Good Investment?
Several factors impact whether a net lease fast food restaurant or QSR is a good investment, including the location, the brand’s reputation, the tenant’s credit, and the location’s financial performance. Due diligence is a priority.
Be sure to research the brand’s financial stability. If it’s owned by a franchise, is the company flush and in good financial standing? Is the lease guaranteed by an investment-grade corporation? Also, look at the brand’s customer base and reputation.
Additionally, consider the location of the restaurant. Are the specific location’s sales on the upswing (not just the company’s or corporation’s)? Is the location primed for population and economic growth? Is the property near highway exits? On a main road near other consumer staples? Are there large populations nearby (University or State Park)? Would it be easy to re-tenant or sell?
It is also important to have a solid understanding of the terms of the lease and any associated fees or costs or hidden clauses. There can be subtle differences between a net lease, double net lease, and triple net lease — those details are important to your investment strategy.
To Wrap it Up — Fast Food & QSR Properties: Our NNN Lease Tenant of the Quarter
As you can see, there is a lot to be said for purchasing a fast food net lease property, which is why these assets are our NNN Tenant of the Quarter. In an unpredictable economy, they are predictable and income-producing, so you don’t have to worry about the quality of your investment or whether you will receive rent every month.
With no slowdown in consumer behavior or these multibillion-dollar brands’ growth projections, these passive commercial properties are a low-risk, budget-friendly, profitable, and easy-to-own real estate investment.
No-Obligation NNN Conversation with a Buyer’s Advisor
When you’re ready to find a triple net fast food or QSR property to invest in, it’s best to engage a buyer’s advisor who specializes in triple net lease investments and has access to off-market, pre-market, and newly listed properties. This gives you access to the top properties before they sell. At Westwood Net Lease Advisors, we can help you get the best property for your goals, do all the upfront work for you, and guide you through the buying process, from before the property search through closing, all at no cost to you. Contact us today for a no-obligation conversation, 314-997-5227.
