Investors Find Starbucks Real Estate Just As Tasty As the Coffee
It's no secret that a lot of people love Starbucks coffee. But many investors find the Seattle-based chain's real estate just as tasty, especially newly built standalone locations. Starbucks real estate sits among the top performers in sales volume for new construction in the quick-service restaurant sector, according to the Wilmette, Illinois-based Boulder Group's latest report on this net-lease sector.
Recent market activity highlights the strong demand for Starbucks properties. For instance, a newly opened Starbucks in Buena Park, California, sold for nearly $7.9 million with a 4.09% capitalization rate. This demonstrates the high value investors place on these assets, driven by Starbucks' reliable tenant profile and prime locations.
Here's a current example of what's on the market:
31317 N. Scottsdale Road, Scottsdale, Arizona: $2.5 million, 4.5% cap rate
The Starbucks opened in 2018 next to a retail center anchored by A. J.'s Fine Foods, a gourmet and specialty supermarket owned by Chandler-based grocery chain Bashas'.
Scottsdale is an affluent suburb north of Phoenix. Average annual household income in the area tops $144,000.
How Starbucks Selects Their Site Locations
Median Household Income Requirements for Local Stores
Starbucks typically chooses locations in areas where the median household income is $60,000 or higher. This criterion helps ensure that the local customer base can afford premium coffee products regularly.
Areas Within Employment Districts
Locations near office buildings and business districts are highly favored. These areas generate consistent customer traffic as employees often visit for their daily coffee fix, ensuring a steady stream of business.
Proximity to Other Businesses
The success of a Starbucks location is significantly influenced by the surrounding businesses. Proximity to complementary businesses such as retail stores, offices, and educational institutions can drive foot traffic and increase sales. These businesses attract a steady stream of potential customers who are likely to stop by for coffee. For instance, a Starbucks near a busy shopping mall, office complex, or university campus benefits from the consistent flow of patrons from these establishments, creating a symbiotic relationship that boosts overall business activity.
Locations with Multiple Access Points
Accessibility is crucial for any successful Starbucks location. Sites that are easily accessible by both pedestrians and vehicles tend to perform better. High visibility from major roads and convenient entry and exit points are essential. Understanding traffic patterns is equally important; locations on the side of the road that aligns with the morning commute can capture the daily influx of customers heading to work. Similarly, stores near public transportation hubs or areas with heavy foot traffic benefit from increased accessibility.
Morning Commute Side
Starbucks prefers sites on the side of the road that matches the direction of morning commute traffic. This placement makes it easier for commuters to grab their coffee on the way to work, increasing morning sales.
Corner locations are particularly desirable for Starbucks stores due to their high visibility and ease of access. These locations typically offer multiple points of entry and exit, making it convenient for customers to stop by. Corner lots also tend to have better signage opportunities, increasing the store's visibility to passing traffic. This enhanced visibility can attract more customers, boosting sales and ensuring a steady flow of business throughout the day.
Dedicated Parking Lot
A dedicated parking area with at least 20 parking spaces is preferred. This ensures that customers can find parking easily, even during peak hours, which improves the overall customer experience.
Store Size Requirements
New Starbucks stores are generally between 1,500 and 2,000 square feet. These stores are often situated on plots of land ranging from 0.50 to 1.00 acres. This size allows for sufficient seating, merchandise displays, and efficient customer service.
Average Starbucks Coffee Company Lease Rates
Starbucks' Average Lease Rates and Cap Rates
Starbucks properties are known for their strong lease rates. On average, Starbucks tenants pay about $60 per square foot annually. The cap rates for these properties typically hover around 5.24%, reflecting the premium nature of these investments.
Comparison of Lease Terms and Rent in Different Locations
Lease terms and rent can vary significantly based on location. For example, a Starbucks in a high-traffic urban area like New York might have much higher rent per square foot compared to a suburban location in the Midwest. Urban locations tend to offer higher visibility and foot traffic, which justifies the higher lease rates. Conversely, suburban and rural locations often have lower rents but still benefit from Starbucks' strong brand presence and customer loyalty.
NNN vs. NN Lease Structures
Starbucks properties usually feature either NNN (triple net) or NN (double net) lease structures. In a NNN lease, the tenant is responsible for property taxes, insurance, and maintenance, making it a very hands-off investment for the landlord. In an NN lease, the landlord might still be responsible for the roof and structural maintenance. Both lease structures are favorable, but NNN leases are particularly attractive due to the minimal involvement required from the property owner.
Starbucks Real Estate Operation
Division into Real Estate Territories
Starbucks divides the U.S. and Canada into 17 distinct real estate territories. Each territory has its own store development office responsible for identifying and developing new store locations. This division ensures that local market conditions and customer demographics are thoroughly considered, allowing Starbucks to strategically place stores in high-potential areas.
Store Development Process
The store development process at Starbucks is meticulous and data-driven. It begins with market research to identify high-traffic areas and potential customer bases. Once a suitable location is identified, the territory office evaluates factors such as visibility, accessibility, and proximity to other businesses. The goal is to ensure that each new store has the best chance of success from day one. Starbucks typically prefers locations with high visibility, heavy traffic, and convenient access for both pedestrians and vehicles.
Lease Terms and Corporate Guarantees
Starbucks typically signs 10-year triple net (NNN) leases with options for two additional five-year renewals. In these leases, Starbucks is responsible for paying property taxes, insurance, and maintenance costs, which makes it a low-maintenance investment for property owners. One of the key attractions for investors is the corporate guarantee included in Starbucks leases. This means that Starbucks Corporation guarantees the rent payments for the entire lease term, even if the store underperforms or closes. This corporate backing significantly reduces the investment risk, providing a reliable income stream for landlords.
Tenant Logistics
Store Size Variations in Urban vs. Suburban Locations
The size of Starbucks stores can vary significantly depending on their location. In urban areas, stores tend to be smaller, often ranging from 1,500 to 1,800 square feet, due to higher real estate costs and space constraints. In suburban areas, Starbucks stores are typically larger, ranging from 1,800 to 2,000 square feet, allowing for more seating and a more extensive menu. The flexibility in store size enables Starbucks to adapt to different market demands and customer preferences.
Importance of Drive-Thru Windows and Land Requirements
Drive-thru windows have become a critical feature for Starbucks stores, especially in suburban and high-traffic areas. They offer added convenience for customers, significantly boosting sales during peak hours. For a new Starbucks store, the land requirement generally ranges from 0.50 to 1.00 acres to accommodate the building, drive-thru lanes, and sufficient parking spaces. The presence of a drive-thru can enhance the property's value and appeal, making it a crucial consideration in site selection.
This article was updated on 7/16/2024
