There has been a heightened level of investor interest and activity surrounding suburban, single-tenant QSR assets over recent months. With their drive-thrus, delivery apps and online ordering, sales have been strong, and they are a favorite with net lease retail property investors. Cap rates on assets for many national brands have dropped 25 to 50 basis points in the past 16 months. With that said, inventory is tight, competition is high, and money is on the sidelines waiting for the next wave of cash-flowing net lease retail opportunities. 

We see potential for that capital to be deployed into urban retail and food service concepts for investors willing to consider something other than a typical suburban NNN pad site.

While suburban pad sites are usually anchored by a big box retailer or a sprawling shopping mall, in the urban realm, high foot traffic, dense residential options, public transportation, and employment hubs – all within walking distance – have proven to be the drivers for businesses operating in this environment. Forward-looking investors appreciate the fact that urban property is highly adaptable to various uses without being pigeon-holed by the architecture of a typical pad site. From a lease structure perspective, these assets are often NNN and feature annual rent increases rather than every 5 or 10 years as is typical for a suburban QSRs.