In the first quarter, national asking cap rates in the single-tenant casual dining sector increased 14 basis year-over-year (YOY) to 6.73%, according to the 2021 Net Lease Casual Dining Report from The Boulder Group.

The Boulder Group pins the blame for the rising cap rates squarely on COVID-19. In Q1, casual dining cap rates were priced at an 82-basis point discount to the overall net lease retail market. Cap rates in the overall net sector contracted by 24 basis points, while cap rates in the casual dining sector increased by 14 basis points YOY.

Not all casual dining properties are the same, however. John Feeney, senior vice president of The Boulder Group, says investors focused on solid operators, including Brinker, Darden and Texas Roadhouse. Corporate casual dining brands could utilize their robust balance sheets during the pandemic and quickly pivoted business to curbside, carryout, and online ordering.