Quick-Service Restaurants (QSR) in Texas
Quick-service restaurants (QSRs) entered a new era post-COVID-19, becoming the golden egg of the retail sector. Offering fast, easy service for food at affordable prices, QSRs are growing faster than ever before as consumers look to limit contact but still have an enjoyable eating-out experience. With the sector’s ability to adapt and innovate quickly, accommodations that were made during the global pandemic aren’t retracting but instead are expanding and adapting to fit the customer of the future. While the industry as a whole is performing extremely well, some markets are standouts in the U.S., including Texas. With raging population growth and job opportunities, Texas retail recovered fiercely in 2021, with its success continuing throughout 2022. Now, investors are looking to plant capital in the Lone Star state as franchises open new storefronts and new developments pop up.
QSRs – Ordering for the Future
The quick-service industry is one of the top-performing asset classes in retail and is only growing in popularity. Although dining rooms have opened back up, the majority of QSR patrons are still choosing drive-thrus or takeout options. According to Bisnow, 61 percent of consumers order delivery or takeout at least once a week, a 40 percent increase year-over-year from 2021. Of those consumers, 62.6 percent order from QSRs. Out of all the subsectors of retail, QSR has the most compressed cap rate at 4.85 percent. Top earners include the fast food goliath McDonald’s, along with Starbucks, Chick-fil-a, Taco Bell, and Wendy’s rounding out the top five, according to QSR Magazine. Some other standouts of the year include Popeye’s, ranked 15, and Arby’s, ranked 17. Both companies have launched several initiatives to compete with the top players in the past few years, including limited-time menu items, higher-quality ingredients, and partnerships with well-known celebrities. The chains are also making huge strides in the push for new types of developments, focused on simplifying the ordering process and increasing accessibility.
“Popeye’s new footprint will lean heavily on double drive-thrus. More than 50 percent of stores in its 2022 pipeline currently feature the build—a move designed to serve increased traffic, improve speed of service, and ultimately, further enhance the guest experience.”- QSR Magazine
Moving toward the future of QSRs, brands are focused on building smaller dining rooms and larger kitchens to accommodate more orders in less time. Technology-focused initiatives like AI, mobile ordering, robotics, and automation systems are the current buzzwords of QSR as companies look to outdo one another and cater to new generations. The biggest hurdle QSRs are facing is still keeping a consistent and recognizable brand throughout all new footprints and corporate strategies. Innovation is a must for companies, new or seasoned but creating brand consistency is also essential.
Texas-Based Success
Overall, the retail sector in Texas has shown great real estate and investment fundamentals in recent quarters. Dallas-Fort Worth is first in the nation for net absorption with vacancy rates below five percent. Austin’s vacancy rate has decreased to 3.1 percent as of Q2 22, with demand still increasing. In turn, rent growth was reported at 5.9 percent for retail across the market. South Central Texas continues to be a favorite for developers, with San Antonio averaging 1.6 million square feet annually in deliveries over the past ten years, according to CoStar.
Houston-based Shipley’s Do-Nuts is one Texas QSR that is entering new markets and growing at a rapid rate. Known for their made-to-order gourmet donuts, Shipley’s has agreements to open over 350 locations in the next five years throughout Florida, Maryland, Georgia, Tennessee, Colorado, and Texas. Another Texas favorite that has investors vying for a chance is Las Palapas, a San Antonio-based Tex-Mex restaurant. The company only left San Antonio for the first time in 2021, opening in College Station and Keller near Dallas-Fort Worth and now boasts over 20 locations statewide.
The state of Texas has long been a staple for QSR investors, but the influx of population heightened this demand in 2021 and 2022.
Overall, QSR growth, demand, and performance are expected to continue performing well as consumers opt-out for dine-in and opt-in for quick and easy service. Inflation may affect sales in the short-term but the low price points of QSR products will not be affected like other industries that rely on discretionary spending. Across the U.S., Texas is a hot spot for investors to plant capital and is exploding with development, expansion, and redevelopment opportunities.
