Car Wash Cap Rates Surpassing Other Net Lease Categories
Auto parts, convenience stores and dollar stores are other high-fliers.
Here’s one a reason why car wash properties, along with certain gas stations and convenience stores, saw the highest cap rate spikes in Q1. Their 80% bonus depreciation rate is available in the first year of purchase making them attractive to investors that were already interested in the single tenant net lease asset class.
Those sectors were part of a steady rise in cap rates across the board, according to a new report by B+E. Car-wash cap rates rose by 49 basis points between the fourth quarter of 2022 and the first quarter of 2023 to sit at an average 5.77% cap rate.
“The price shift is likely due to a dramatic increase in on-market inventory, as more than one new car wash property has been listed each day in 2023,” according to the report.
Caliber Car Wash (5.94%) and Zips Car Wash (5.81%) had the highest cap rates in their category.
Auto parts (5.54% cap rate) rose by 47 bps; followed by convenience stores (5.12%) and dollar stores (6.05%), which each rose 30 bps.
Strickland Brothers 10 Minute Oil Change (6.16%) and Advance Auto Parts (5.95%) had the highest cap rates in this space. Tops in the convenience store category was Quik Mart (6.38%) and for Dollar Store, it was Family Dollar (6.60%).
Grocery (5.52%), casual dining/restaurants (5.88%) banks (5.41%), big boxes (5.98%) and pharmacies (5.83%) also had their cap rates elevate in the first quarter, according to B+E.
The firm said it expects this cap rate movement to continue upward because of market volatility.
“Single-tenant net lease becomes more appealing, especially in assets with longer lease terms, investment grade tenants, and highly passive lease structures,” according to the report.
“This makes it an attractive option for investors who are looking for more stable, lower-risk investments in the face of an uncertain market.”
B+E showed that specialty assets such as early learning, dialysis, and urgent care saw minimal fluctuations in cap rates.
“These assets are less susceptible to economic downturns, pandemics, and e-commerce factors, their resilience making them an enduringly attractive option for investors,” B+E wrote.