Investments in fast food and convenience stores are on the rise, as recent analyses highlight these sectors as prime opportunities for commercial real estate (CRE) investment. With low vacancy rates and increasing consumer demand, investors are turning their focus to quick-serve restaurants (QSR) and convenience stores (C-stores) as lucrative options for the coming years.
Key Takeaways
Fast food and convenience stores are experiencing low vacancy rates, making them attractive for investors.
The demand for these retail sectors is growing, with innovative offerings transforming C-stores into destination locations.
The fragmented nature of the industry allows for competitive investment opportunities.
The Current Landscape of Commercial Real Estate
In October 2024, Oxford Economics identified a “window of opportunity” for CRE investment, suggesting that the next 12 to 18 months would be ideal for entering the market. While Europe and industrial segments may offer potential, the U.S. market is seeing significant interest in fast food and convenience stores.
The phrase “location, location, location” is crucial in retail investment. A good location is defined by the intersection of supply and demand, which varies between commercial tenants and owners. Investors are particularly interested in areas with low vacancies, as these locations provide leverage in negotiations.
Vacancy Rates in Retail
According to a report by Marcus & Millichap, convenience stores and fast food establishments have the lowest vacancy rates in the retail sector, both below 2%. In contrast, other retail types, such as outlet centers and community/neighborhood centers, have vacancies exceeding 5%.
Performance of Fast Food and Convenience Stores
Recent data from Pacer.ai indicates that C-stores are evolving into vibrant destinations, offering dining, shopping, and tourism experiences. This transformation has led to consistent year-over-year growth in foot traffic, outpacing overall retail trends. Customers can now find gourmet options, such as brisket sandwiches and craft beers, enhancing the appeal of these establishments.
The fast food industry is also thriving, with a fragmented market allowing smaller chains to compete effectively. The top 10 chains hold less than 20% of the market share, providing opportunities for investors to capitalize on emerging brands and locations.
Investment Trends and Opportunities
Despite a decline in overall retail deal flow in 2024, the number of transactions related to fast food has increased. Investors are drawn to the low vacancy rates and the expansion of chains, leading to heightened competition for properties leased to these tenants.
Net-leased properties, where tenants cover rent and additional costs, are particularly appealing. The current consumer demand for fast food and convenience offerings supports the need for more retail space, making these investments attractive.
Balancing Yields and Risks
Retail yields are currently favorable compared to risk-free rates, with many markets showing a resurgence in rental growth. However, potential increases in Treasury yields could impact commercial mortgage rates and rental prices, creating uncertainty in the market.
As the economic landscape evolves, investors are advised to consider the current opportunities in fast food and convenience stores as a strategic entry point into the CRE market. With the right timing and location, these sectors may provide substantial returns in the coming years.
Sources
Fast Food And Convenience Stores Are Good Real Estate Investments Now, Forbes.
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