Opinion: James Pearson

The UK’s drive-thru market is booming off the back of unprecedented demand. As operators compete for the best sites, seeking specialist property advice is more important than ever.

Covid has served to supercharge the UK’s drive-thru market. Changing consumer behaviour coupled with lockdown restrictions have fuelled a surge in demand for hands-free quick service solutions. Consumers have been eager to take the opportunity to grab a take-away coffee or a burger and fries without having to leave the safety of their car. The length of traffic queuing outside prime drive-thru units is testament to the fact that there is at least one facet of the hospitality market that has enjoyed a bumper year.          

According to data from global market research firm NPD Group, £2.3bn was spent at Britain’s 2,000 quick service restaurants during the 12 months to February 2021. Drive-thru spending represented 12% of total hospitality spend, a 50% increase in importance compared to the situation pre-covid. They have provided a lifeline for restaurant operators in recent times, especially those which double up as kitchens for Uber Eats and Deliveroo.

Hot coffee

Even prior pandemic, drive-thru was becoming a hotly contested space. New entrants such as coffee operators have been quick to capitalise and compete for space with the more established quick-service restaurant brands. According to NPD Group, coffee chains with drive-thru saw a 14% increase in sales year on year compared to 2019 highlighting why a growing number of operators are looking to expand their portfolios.

At GCW we have seen competition for drive-thru sites intensify in recent months and there are no signs of that easing off. As well as the coffee brands, we now have a list of new restaurant operators including Tim Hortons, Greggs, and Wendy’s all vying for suitable space. Rents have held up well compared to other sectors and there is growth for the right site in the right location.

Unit sizes start from around 1,300 sq ft and some operators are prepared to sign up for 15-year leases. Yet evaluating sites is complex, it is challenging to secure appropriate sites and there are a number of barriers to entry. We have been acquiring drive-thru sites for nearly two decades and as demand heats up, our team’s market knowledge and experience is proving more valuable than ever.

We have advised KFC on drive-thru acquisitions since 2003 and are currently busy helping the brand acquire sites across the South of England. Examples of recent KFC acquisitions include the conversion of a former Carphone Warehouse unit in Romford and securing a new drive-thru in Ashford.

Quick service

GCW’s market knowledge and boots on the ground approach has proved invaluable to our clients’ expansion drives, particularly as other players start to enter the arena. It is critical to have an in-depth understanding of the quick-service restaurant market when acquiring sites, to take a forensic approach to evaluation and leave no stone unturned when researching new opportunities.

As the market becomes increasingly competitive, securing sites will become ever more challenging and it is critical operators partner with a trusted and experienced property advisor. They need to navigate a number of obstacles, including securing planning and evaluating potential sites. Rents vary hugely and operators need to be savvy when identifying the most suitable drive-thru location with the right visibility, traffic, and ease of access.

Covid may have accelerated the rise of the drive-thru but even when restrictions ease, the trend looks set to continue as operators expand the offer to incorporate new types of cuisine. Consumer habits are unlikely to change and if operators can kill two birds with one stone by integrating home delivery hubs, these will remain prized assets.

Alongside with increased competition is a growing investor appetite for drive-thru assets. As an asset class they are typically let on longer leases than you would find on the high street. A good example of that is Costa who will expect a break at year 6 in town but on a roadside pod will consider up to 15 years. Many of the operators provide strong covenants and combined with indexed reviews to guarantee some growth, they make for secure investments. Some of the historic concerns such as residual value seem less of a concern as the sector feels more sustainable and the investors react to changing consumer trends. We have a variety of clients interested in investing in the sector both for up and built and funding scenarios.

It is difficult to crystal ball gaze when faced with so much uncertainty, but it seems that based on strong fundamentals, the drive-thru sector will continue to grow.