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Casual Dining Tenants Are Performing Better Than The Entire Net Lease Sector. Here's Why.

The Hooters on Wells Street, Chicago, IL
Hooters on Wells Street

Retail has been golden in the first half of 2016. Net lease retail even more so, especially if you have a quick casual dining tenant occupying your assets. That's according to a new report from single tenant net lease kings The Boulder Group. During Q1, cap rates among net lease casual dining restaurants were at 5.75%. Corporately guaranteed leases had cap rates of 5.65% while franchisee leased properties were priced 65bps higher at 6.3%.

Investor demand is so strong for casual dining net lease properties that they're at a 43bps cap rate premium over the entire net lease retail sector.

There are three driving factors behind this demand:

  • Casual dining is one of the few net lease sectors proven to be e-commerce resistant.
  • Private investors and 1031 exchange buyers want casual dining in their portfolios because they come with triple net leases and rent escalations during the primary lease term.
  • Casual dining properties are usually occupied by recognizable brands in high visibility locations of retail corridors.

The cap rate breakdowns by region are stable, with the Midwest leading the charge at 6.05%.