Although retail was one of the most impacted asset classes during the pandemic, a handful of certain stores forged ahead in 2020. Among the list of the retail winners is drive-thru and quick-service restaurants, convenience stores and single-tenant learning and childcare centers.
According to Hanley Investment Group, single-tenant retail cap rates compressed in California during the year, and drive-thru and quick service restaurants drove the trend. “When the global pandemic hit, the drive-thru became a critical sales channel for preserving store revenue and it has continued to be extremely effective for the chains and time-starved consumers,” Ed Hanley, president of Hanley Investment Group, tells GlobeSt.com. “Furthermore, even if indoor seating is allowed, some consumers are still favoring drive-thru lanes as a safer and more convenient option. This consumer shift has caused chains to reexamine their footprint and use of technology and efficiency.”
One examples of the low cap-rate deals include the sale of a Chipotle Mexican Grill with a double-drive-thru in Lathrop for $3.2 million, or $1,371 per square foot, and a cap rate of 4.05%. This was a record-low cap rate for a new Chipotle drive-thru in the US.
7-Eleven convenience stores are also at the top of the list for strong investment interest during the pandemic. Hanley Investment Group sold 12 convenience stores in 2020 in California, Illinois, Missouri, Texas, Utah, Virginia and Washington, and those with a fuel station were particularly popular. “7-Eleven is one of the largest, most successful retailers in the US, and the company’s operating success as an ‘essential business’ during the pandemic further accentuated the attractiveness of this investment grade tenant,” says Hanley.
A somewhat unexpected addition to the list is single-tenant learning and childcare center properties. Cap rates also decreased for this property class. “Despite the challenges that the pandemic has had on in 2020, we still saw a compression in the average cap rate in top MSAs around the US. From March through December 2020, 58 single-tenant learning or childcare centers traded in the US at an average cap rate of 6.88%. In 2019, the average cap rate was 6.98%,” says Hanley. “In 2020, Hanley Investment Group arranged the sale of five learning centers at an average cap rate of 6.57%. Sales included Kiddie Academy, KinderCare and New Horizon Academy.”
In terms of geographic markets, Hanley noted that coastal areas performed the best during the year. “Coastal properties along Pacific Coast Highway in Southern California continue to receive strong investor interest,” says Hanley. “Buyers of these types of assets have a long-term view and understand the fundamental value of the real estate and location and are not overly concerned about the impact of COVID-19.”