Commercial Investment Real Estate May/June 2016 | Page 8

MARKE T
TRENDS
Auto
Parts Drive
Net Lease Market
A
Auto parts stores remain in high demand by net lease investors in the $2 million and
under sales category, according to T e Boulder Group. Small investors favor auto parts
stores over dollar stores because they tend to be located in primary and secondary markets
near bigger retailers. Cap rates for the auto parts sector compressed 27 bps from 4Q14 to
4Q15 and of er the same premium over the general retail net lease market. With today’s
car averaging 11.5 years of service, DIY auto repair is a necessity more than a hobby,
with Advance Auto Parts, AutoZone, and O’Reilly Auto Parts capturing the majority of
demand. 4Q15 cap rates for the three brands were 6.35 percent, 5.75 percent, and 5.68
percent respectively. Advance Auto carries a higher cap rate due to a higher percentage of
older stores with lower lease terms.
Percentage of
stores with leases
< 10 years Median PSF Percentage of
market share
Advance Auto Parts 50% $235 53.5%
AutoZone 20% $262 16.9%
O’Reilly Auto Parts 29% $244
Tenant
29.6%
“Despite the improving economy and dearth of
large, available blocks of space, rent levels do
not justify new [offi ce] construction in many
markets — particularly given rising development
costs — which has limited the options for tenants
requiring large footprints.”
— Andrea Cross, CBRE Americas head of of ce research
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May | June | 2016
Commercial Investment Real Estate
Source: The Boulder Group