Net Lease Casual Dining Properties Are On Fire

According to a recent article in Realty Biz News, cap rates in the net lease casual dining restaurant sector were 5.75% in the first quarter of 2016. Casual dining restaurant properties with corporately guaranteed leases had cap rates of 5.65% while franchisee leased properties were priced 65 basis points higher at 6.30%.

Cap rates for casual dining restaurant properties will vary depending on if the lease is guaranteed by a franchisee or corporate operator. In the first quarter of 2016, franchisee backed casual dining restaurants accounted for only 31% of the overall supply of casual dining restaurants. Franchisee operated restaurants were priced at a 65 basis point discount compared to corporate backed restaurants. Additionally, cap rates for franchisee backed restaurants can fluctuate depending on the financial strength and size of the franchisee.

The single tenant net lease casual dining restaurant sector will remain active as this asset type continues to attract private and 1031 exchange investors. The rental escalations and absolute net lease language found in the majority of the leases associated with casual dining restaurants are attractive to private and 1031 buyers

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