Americans spent more money dining out than in grocery stores for the first time ever in 2015. Since then, restaurants have made changes to accommodate today’s consumer. These changes can be a huge payoff for investors looking to contribute to an already successful, established corporation such Starbucks, Chick-fil-A, and Chipotle. But why should investors, more now than ever, choose to invest in restaurants such as these? Customers want quality, convenience, and a unique experience while dining and because these companies have capitalized on these trends, they offer a unique and stable opportunity for investors

Larger and more established restaurant chains aren’t necessarily looking for constant expansion opportunities. This allows the companies to pay out more of their profits to shareholders, instead of investing in new business. For example, Starbucks generated $23.1 billion in net income from 2008-2017 while paying owners $5.2 billion and reinvesting $17.9 billion back into the company. With this, companies like Starbucks can dabble in craft markets such as health-focused and high end experiences without much risk. Starbucks has already seen success in its luxury reserve roasteries that offer higher-priced menu items in a unique store layout.

When professionals in the real estate industry hear the term “1031,” they typically think of single tenant, triple-net leased properties.  Drugstores.  Restaurants.  Banks.  This certainly is a past and present trend, but compressing cap rates in these sectors have caused many private exchange buyers to look elsewhere for higher returns.  The retail model with perhaps the highest uptick in recent demand has been the newly-constructed two to three tenant buildings, especially outparcels to larger shopping centers.  Tenant categories many times include at least one, if not two, restaurants, and may include cellular phone stores, mattress, dental, and a host of other small format retailers.  While cap rates for these properties can dip into the 5% cap rate range, by and large they have been trading between 6% and 6.75% depending on tenancy and market.