Coffee shops, such as Starbucks and Dutch Bros., have become prominent players in the single-tenant retail market. Faris Lee Investments recently published a white paper on this category, but their team also handles a wide range of assets that were significant in the 2023 investment sales market. In an exclusive interview with Connect CRE, managing principals Jeff Conover, Don MacLellan and Shaun Riley shared their insights on last year’s trends and what to expect for 2024.
Aside from coffee chains like Starbucks and Dutch Bros., other top-performing categories included quick-service restaurants (QSRs) and supermarkets. According to Conover, investors are drawn to these categories due to their stability and ease of management.
In addition, single-tenant properties are becoming more appealing as an alternative option for those looking into multi-tenant shopping center acquisitions. As Riley explains it: “The majority of transactions for these properties involve all-cash deals or readily available financing options.”
For multi-tenant properties specifically strip shopping centers with two-to-seven tenants were highly sought after last year – particularly those located near anchor stores or standalone buildings – selling within the $3-million to $7-million price range.
Emerging single-tenant categories include car washes and electric vehicle dealerships; however this did not come at the expense of established sectors like QSRs or coffee shops.
MacLellan notes that there was simply an increase in supply due to new developments such as Tesla/Lucid showrooms which offer long-term leases requiring minimal management efforts compared to other asset types.
Other noteworthy trends from 2023 include growing interest in cannabis dispensaries where legal sales exist along with a resurgence of sit-down restaurants despite initial challenges during pandemic times. As Riley points out: “As sit-down operators began recovering from pandemic-related losses over time we saw increased investor confidence leading up until now.”
While branding is important across all single tenant-retail sectors it plays an especially significant role in the coffee category. Conover highlights Starbucks and Dutch Bros., which have been actively expanding their footprint, along with 7 Brew as prime examples.
In terms of top-performing brands within QSRs, MacLellan compares it to a “haves and have-nots” situation where certain names like McDonald’s or Chick-Fil-A dominate sales compared to others.
Looking ahead into 2024, MacLellan predicts that there will be a rebound in sales volume after experiencing a slowdown due to rising interest rates. He also notes that loan maturities may become an issue for some borrowers who may struggle with increased debt service costs and lack of necessary loan proceeds – potentially leading them to seek additional equity.
Ultimately, strong single-tenant assets with reputable brands on long-term leases at well-located properties will continue attracting investors’ attention; however as supply surpasses demand cap rates are expected increase in order attract buyers’ interest.
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