Several months into the new normal, investors and brokers alike can more clearly see what commercial properties have withstood the last two quarters’ economic uncertainty. While some assets have undoubtedly been hit harder than others, certain property types such as triple net QSRs, pharmacies, and discount stores are flying off the proverbial market shelves.
To investigate those attracting investor interest, we dove into Crexi’s internal data and identified the most searched brands on our platform. Read on for our findings and analyses on the post-pandemic winners in commercial real estate.
Dollar General leads the charge
On Crexi, searches for Dollar General were more than four times higher than searches for the next most popular search term (CVS). Buyers searched for Dollar General jumped 15.2% from the end of Q2 to the end of Q3. This climb in interest in discount convenience stores reflects an interesting turn in how the pandemic influenced consumer spending.
Crexi spoke with Kyle McCollum, Vice President of Operations and Partner at Trinity Real Estate Investment Services, a brokerage specializing in net leased retail and industrial assets, for more insights. “Dollar General surprised everyone… when grocery stores sold out of essentials like toilet paper nationwide, a lot of suburban [residents] went to their local Dollar General, which had what they needed,” said McCollum.
The chain of discount stores has seen record transaction volume this year. McCollum reported that Trinity oversaw the transaction of nearly 150 Dollar General units to date in 2020, with plenty more deals in the pipeline. “They were the golden child of the pandemic, with a high-quality credit rating and [often] 15-year triple-net deals. They stayed open during the shutdown […] they’re a safe play for investors that want the certainty of rent payments.”
The interest is apparent on our site: Dollar General-related searches accounted for 1.42% of total keyword searches on Crexi. While this number seems small, it represents the activity of thousands of investors.
CVS and Walgreens vie for second place
CVS and Walgreens, competitors in the pharmacy space, have traded off second place over the last few quarters as Crexi’s second most searched brand. CVS-related searches rose 23.7% at the start of Q4 compared to the previous quarter. Over the same period, buyer searches for Walgreens properties rose 18.7%, providing further evidence of investors’ growing interest in the pharmacy subsector.
Pharmacies are often in optimal main-on-main locations, with plentiful parking and high volume points of ingress and egress. While already highly desirable buildings, branded pharmacies such as CVS and Walgreens took early advantage of drive-thru windows. These proved to offer a strong advantage of high-traffic sales volume while protecting the health of shoppers. Additionally, CVS and other brand-named pharmacies have spent recent years developing a branded “wellness experience,” establishing themselves as a one-stop-shop for health rather than a convenience store with a pharmacy attached.
McCollum speculates that CVS and Walgreens are seeing slightly lower search volume only because these assets are priced higher than Dollar General properties. Still, CVS and Walgreens laid claim to thousands of searches and 0.99% and 0.85%, respectively, of total search volume on Crexi.
Starbucks’ adaptability promises steady recovery
While Starbucks faced a significant impact on operations and revenue early in the pandemic, the global corporation has proven nimble in its ability to adapt and thrive in the new normal. Starbucks was the third most searched term on Crexi in 2020, despite search activity taking a dip following dismal Q2 earnings. Searches for Starbucks on Crexi grew by 35.5% from the start of Q3 to the beginning of Q4, continuing a 2-month, high-growth trend.
An earnings call on October 29th reported promising recovery ahead, with chief financial officer Patrick J. Grismer expecting 18-23% global growth in the 2021 fiscal year. The coffee conglomerate has proven able to quickly change course, closing down inefficient indoor communal places in favor of drive-thru equipped, convenience-friendly units with more resilient operating and safety protocols.
Starbucks and other quick-service restaurants (QSRs) have the benefit of convenient, to-go operations, which helped them weather the COVID-19 storm more effectively than sit-down restaurants. Crexi searches for Starbucks accounted for 0.8% of all search term queries in 2020, while other top-performing QSRs included Taco Bell, Burger King, and Wendy’s.
Why invest in triple net lease brands?
Overall, branded tenants with triple net lease properties have proved themselves amid turbulent times. Brand name tenant-leased properties have strong fundamentals even in regular economic periods, with reliable credit and plentiful financing available, thanks to higher credit ratings from agencies like Standard & Poor’s or Moody’s. Better financing, particularly during the historically low-interest rates currently available, points to considerable savings over the life of a loan.
Brand recognition and affinity also play a big role in triple-net leases’ success. A notable name such as Starbucks or Walgreens draws customers searching for a reliable experience and often occupies the most attractive locations on main street or cross streets, offering increased foot traffic than mom-and-pop shops even during COVID-19. High foot traffic translates into a steady cash flow with predictable earnings, and the longer lifetime of NNN leases promises consistency in the tenants’ growth.
A branded tenant-leased property is like a bond in the form of a commercial real estate asset: no fuss is required, and the long-term gains are much more resilient to market swings. Even during the worst months of the pandemic, branded tenants were renegotiating temporary rent concessions for longer lease terms, contrary to many other regional and local lease-holders.
Keep in mind, however, every triple net lease is different. Per McCollum, “If an investor is new to triple net deals, they need to be educated on their options and the pros and cons of each tenant type. Each investor has their own profile and needs, and matching that with a tenant whose lease structure and terms fit is important. Guarantor, lease term remaining, rental increases in the primary term, every tenant and lease is unique… but with so many options on the market, there’s a flavor for every investor.”
Famous brands with minimal management needs and reliable cash flow are proving attractive to investors, serving as a stable alternative to the stock market and other more volatile options. Brands like Dollar General, CVS, and Starbucks have proved capable of withstanding economic shutdowns. In these uncertain times, many investors are favoring defensive investments rather than a high-growth play.