In a year marked by economic uncertainty and fluctuating interest rates, real estate investors are seeking solid opportunities that promise reliable returns. While various sectors of commercial real estate (CRE) show mixed performance, two key areas—fast food (quick-serve restaurants or QSR) and convenience stores (C-stores)—have emerged as strong contenders for investment, particularly in the U.S.
The Real Estate Window of Opportunity
In October 2024, Oxford Economics highlighted a unique “window of opportunity” for CRE investments over the next 12 to 18 months, particularly in Europe and industrial CRE. However, in the U.S., data and market analysis suggest that QSRs and C-stores represent some of the most attractive investment prospects.
This insight is backed by the fact that fast food and convenience stores offer distinct advantages over other retail segments. With high demand, limited vacancy, and strong consumer interest, these properties promise both growth and stability in a volatile market.
What Makes Location Key for Retail Investment?
The phrase “location, location, location” is frequently misinterpreted. For retail investors, the ideal location is more than just a busy area—it’s about matching the right site to the supply and demand dynamics. Commercial tenants, such as QSRs and C-stores, seek high-traffic areas with the necessary infrastructure for customer convenience. Meanwhile, landlords typically want low vacancy rates to maintain a strong bargaining position when setting rental terms.
Recent reports, such as the Markus & Millichap Q4 2024 retail report, show that QSRs and C-stores have among the lowest vacancy rates, both falling below 2%. In contrast, retail segments like outlet centers and neighborhood malls face much higher vacancy rates—over 5% and nearly 6%, respectively. This makes QSR and C-store properties more attractive for long-term investors looking for stable cash flow and low risk.
The Performance of Fast Food and Convenience Stores
Both sectors are performing well due to evolving consumer demands. In particular, C-stores are rebranding themselves as destination locations, moving beyond their traditional role as quick-stop convenience points. As noted by Pacer.ai, convenience stores are adding dining, shopping, and even tourism experiences, driving year-over-year foot traffic growth that surpasses the general retail market. Today’s C-store customers can find gourmet options like brisket sandwiches and craft beers, transforming the retail experience.
In the same vein, the fast-food industry has remained a stable player in the retail market. With expanding chains and strong consumer demand, QSRs are increasingly seen as secure tenants, making them an attractive investment for net-leased properties (where the tenant covers rent as well as some operating costs like property taxes and maintenance).
Investor Demand and Market Dynamics
Despite a decline in overall retail deal flow in 2024, there has been an uptick in fast food property transactions. According to Marcus & Millichap, competition for properties leased to fast food tenants is intensifying due to the low vacancy rates and the expansion strategies of many QSR chains. The fragmented nature of the U.S. C-store market also contributes to the appeal, as the industry is still dominated by smaller chains, which leaves room for competition and price flexibility.
Strong Yields vs. Risk-Free Returns
With yields on retail real estate in many markets outperforming those of risk-free assets like the U.S. Treasury’s 10-year bonds, QSR and C-store investments offer an attractive alternative to more traditional, lower-yield investments. As of December 27, 2024, the 10-year Treasury yield stood at 4.62%, its highest rate since April 2024, and it is expected to rise further in the near future. As such, real estate investments in fast food and convenience stores offer more appealing returns in comparison, especially when factoring in rental growth in certain markets.
However, it is important to note that rising interest rates could negatively impact mortgage costs and rental pricing, which might, in turn, affect demand. While these investments are attractive now, market conditions could change rapidly, making it critical for investors to act before rates rise further.
Conclusion: A Strong Investment Opportunity
As we enter 2025, fast food and convenience stores stand out as some of the most promising segments within the U.S. commercial real estate market. Their low vacancy rates, expanding market share, and ability to adapt to consumer preferences make them particularly attractive to investors. With stable yields compared to other asset classes and strong demand for space, now could indeed be the ideal time to make an investment in QSR and C-store real estate before economic conditions shift.
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