Are you interested in getting started in commercial real estate but want an investment where you can be hands-off and earn a passive income? Triple net lease properties might be the perfect segway from residential to commercial properties.
NNN leases are typically large franchise stores, such as Starbucks, Walgreens, and 7-Eleven, that have a stable and guaranteed cap rate every year. Triple net leases are advantageous for the investor since the tenant will be paying all the property’s operating expenses during the long-term lease.
In this guide, we will discuss Starbucks’ market lease rates and how they select their sites. Site selection is a critical component to ensure the NNN lease will make money. Keep reading to find out if opening a new Starbucks store number is right for you.
How Starbucks Selects Their Site Locations
Starbucks opened in 1971 and has since exhibited market dominance in the coffee quick-service restaurant sector. One of the main reasons Starbucks coffee does so well is they choose their sites carefully.
Every Starbucks address and store number references a meticulously planned business venture. During Starbucks’ real estate site selection, they make careful business decisions to ensure the success of each one of Starbucks’ opened locations.
Median Household Income Requirements for Local Stores
One of the reasons Starbucks Coffee Company is a staple in many people’s morning routines is that they deliver consistent gourmet coffee beverages. This premium quality sets Starbucks stores apart from your regular drip machine.
With better quality coffee comes slightly higher prices, so most Starbucks real estate sits near areas with a median household income of $60,000 or more for local licensed stores.
Most people with a median household income above this tend to work regular jobs from Monday through Friday. This increases morning traffic during the peak coffee-drinking time.
This requirement is generally for more local stores that are outside of the typical business district in big cities.
Areas Within Employment Districts
As we all know, people who work a lot usually love their coffee. Many people consider caffeine to be the fuel of the workforce, and we can’t disagree.
One of the most important factors for Starbucks real estate site selection is the close proximity to employment districts.
Large city centers with many office buildings and a lot of employees tend to bring consistent coffee customers. Many Starbucks repeat customers will get the same coffee order every day before they head into their office. This creates a solid customer base for a Starbucks licensed store in an employment district.
Proximity to Other Businesses
One of the huge draws for site selection is the proximity of other businesses. Starbucks typically tries to find an address with a mix of different retail stores nearby because it improves the foot traffic patterns in the area.
This can help differentiate stores between good and fantastic locations. Many times, when people are out Sunday shopping, they will stop for a coffee and continue their retail therapy.
Many people consider shopping a leisurely activity to do on the weekend with their family. Well-placed Starbucks licensed stores offer shoppers a place to relax or take their coffee to go and continue shopping. The premium nature of their coffee makes it feel like a treat, which is ideal for weekend walking shoppers.
Locations with Multiple Access Points
Accessibility is everything! If people have easy access to an establishment, they will choose it over a place with no access. Great real estate locations are always well-designed, accessible, and visible to the public.
One of the Starbucks requirements is the property should be on the main path of both foot and vehicle traffic.
You should also have easy ingress and egress through the drive-thru line and parking lots so customers can come in and out efficiently. There should be at least one entrance and one exit that is easy to get into and won’t be blocked by the drive-thru line.
Another key factor in bringing in customers is visibility. As you know, when you are driving to work, you can always spot the Starbucks company building well before you get close to it. The iconic logo entices customers to stop for a coffee before work.
Morning Commute Side
Most people prefer to grab a cup of coffee in the morning before they start work, as opposed to on their way home. Another important Starbucks real estate requirement is that a property located on the morning commute side of traffic is preferable.
They want to be on the side of the road where most of the morning traffic is heading into work so customers can easily pull into the drive-thru, get their coffee, and get right back on the road. The busiest time of day is between 7:00 AM and 7:30 AM.
This also applies to areas where most people walk through the city to get to work. They want to be able to serve people who get off the train or bus and walk past Starbucks.
For example, if morning commuters walk past a storefront on the same side of the road as themselves, they are more likely to stop for a coffee.
Dedicated Parking Lot
If you have ever been to a crowded quick-service restaurant, you know how daunting it can be to park your car. Another one of the Starbucks real estate requirements is a dedicated parking lot for every store location. They prefer to have enough space for at least 20 vehicles at a time.
They expect the parking lot to be accessible from the road. Parking spaces should also be clear of the drive-thru line, so no cars get blocked in while trying to order.
Store Size Requirements
Every Starbucks store should have the adequate square footage to accommodate guests at the busiest times. They prefer buildings with adequate space for seating and standing, as well as space to sell their merchandise. Buildings between 1,500 and 2,000 square feet are ideal.
The average Starbucks size for new leases is based on the free-standing properties, as opposed to small areas within malls or department stores. If they are planning new construction for a Starbucks store, the plot of land should be between 0.50 and 1.00 acres of land.
Average Starbucks Coffee Company Lease Rates
Starbucks is an attractive asset for many real estate investors due to its strong corporate guarantee, high credit rating, and over 32,000 stores worldwide. Starbucks building tenants pay one of the highest monthly rent prices for their property space, at around $60 per square foot.
The Starbucks franchise typically signs a long-term 10-year net lease, which is great for the investor. Over the course of this 10-year lease, the rent prices will rise every five years. The average cap rate for a Starbucks net lease is around 5.24%, and the average sales price is anywhere from $2 to $2.5 million.
Many Starbucks companies operate as NNN leases, which means the property owner is not responsible for the maintenance of the property.
The tenant pays for everything, including renovations, which are outlined in estoppel certificates before the sale. However, some locations operate as NN leases, which leaves the landlords responsible for the structure and roof.
We recommend entering into hardball negotiations with a potential tenant during a sale to determine which party will be responsible for each facet of the lease. You should ask numerous questions before the sale to further position yourself ahead of other companies or interested buyers.
- Will the real estate manager or tenant be responsible for taking care of maintenance before and after the sale?
- Will the tenant pay more based on market fluctuations, or is the rent set at the time of the sale?
- Can the Starbucks company end the lease whenever they want?
On that note, the NNN lease contracts for a Starbucks tenant typically have termination options, which cannot be executed without the proper legal notices.
This might seem risky for the investor, but Starbucks is one of the top performers. On Starbucks’ end, if they continue to make money at the location, they will likely continue the lease.
Is Starbucks a Good Investment?
With every investment opportunity, there are always some risks involved. But Starbucks is the premier major retailer of great coffee. They continue to open stores in some of the best real estate locations around the world. In the net lease sector, this is considered a huge win.
With an impressive “A” credit rating, they have corporate backing to sustain the lease for more than 10 years. As long as the numbers look good for a given Starbucks location, then the triple net lease will likely continue to increase sales volume throughout its duration.
We recommend a triple net lease for a Starbucks location, so you will not be responsible for any repairs or maintenance on the building.
Another thing to note is that Starbucks’ average net operating income is around $118,000 per month. Starbucks’ initial growth is an advantage for investors.
As soon as a new store opens, customers start flocking to the doors, which helps with location growth over time. Starbucks’ ability to retain loyal customers is unmatched by any other establishment.
Since Starbucks opened, the average cap rate has been above 5%. We think Starbucks is still a wise investment for people who want to add a triple net lease to their portfolio.
Acquiring a Starbucks Store with the Help of NNN Deal Finder
From a net lease perspective, Starbucks’ excellent site selection process and increasing popularity make it a sound investment. If you are interested in adding an NNN lease to your portfolio, you will need to contact a top-notch real estate team.
Our team works with each client on an individualized basis to ensure we secure the most profitable NNN property on the market.
If you want to start earning “mailbox money” and collect rent checks while your investments work for you, then contact us to check out some of our prime Starbucks locations throughout the United States. Work toward choosing your own destiny by investing in an NNN property today!