THE NET LEASE AUTO PARTS STORE REPORT MARCH 2014 AUTO PARTS STORE PROPERTIES MEDIAN ASKING CAP RATES
MARKET OVERVIEW
Q4 2012 (Previous)
Q4 2013 (Current)
Basis Point Change
Advance Auto Parts
7.25%
7.20%
-5
O'Reilly Auto Parts
6.55%
6.00%
-55
AutoZone
6.50%
6.00%
-50
Tenant
MEDIAN
ASKING PRICE
Tenant
Median Asking Price
Median Price Per Foot
Advance Auto Parts
$1,509,000
$216
O'Reilly Auto Parts
$1,743,000
$245
AutoZone
$1,750,000
$256
PERCENTAGE OF AUTO PARTS STORES ON THE MARKET BY TENANT Percentage of Market
Tenant Advance Auto Parts
57.4%
O'Reilly Auto Parts
22.1%
AutoZone
20.5%
AUTO PARTS STORE PROPERTIES VS. RETAIL NET LEASE MARKET
Q4 2012 (Previous)
Q4 2013 (Current)
Auto Parts
6.53%
6.22%
Market
7.25%
6.85%
72
63
Sector
Auto Parts Premium (bps)
Cap rates for the single tenant net leased auto parts store sector compressed from the fourth quarter of 2012 to the fourth quarter of 2013 by 31 basis points. The auto parts sector, for the purpose of this report, is defined as Advance Auto Parts, AutoZone and O’Reilly Auto Parts as they account for the highest percentage of transactions within the auto parts sector. The cap rate compression was derived by the limited supply of investment grade assets priced below $2 million, which is the value of most properties tenanted by these retailers. For assets priced below $2 million, there are more private and 1031 exchange buyers that are able to pay a premium over institutional buyers. Despite the combined auto parts sector’s 500 new store openings in 2013, the supply of auto stores decreased in the net lease market by 5% from the fourth quarter of 2012 to the fourth quarter of 2013. This can best be attributed to the fact that the companies own an increasingly higher percentage of their locations. While cap rates for the entire net leased auto parts sector decreased by 31 basis points from the fourth quarter of 2012 to the fourth quarter of 2013, cap rates for Advance Auto Parts remained near levels from the previous year. AutoZone and O’Reilly Auto Parts experienced the greatest cap rate compression, 50 and 55 basis points respectively. These tenants have more desirable lease structures for investors as AutoZone and O’Reilly Auto Parts typically sign 20 year leases as opposed to Advance Auto which typically signs 10 or 15 year leases. A significant event in the auto parts sector occurred after the conclusion of the fourth quarter of 2013. In January 2014, Advance Auto Parts closed on its $2 billion acquisition of General Parts International, which includes the CARQUEST and WORLDPAC brands. This acquisition makes Advance Auto Parts the largest supplier of automotive aftermarket parts and the largest distributor of import automotive parts in North America. This acquisition balances the Do-It-Yourself (DIY) and Do-It For-Me (DIFM) markets for Advance Auto Parts, a strategic move as the DIFM market is experiencing two times the growth of the DIY segment. Transaction volume in the auto parts sector remains heavily concentrated in recently constructed properties with long term leases. Auto parts store properties with shorter lease terms located in areas with strong real estate fundamentals also remain in high demand. The single tenant net lease auto parts sector will continue to remain active as private investors and 1031 exchange buyers seek properties with long term leases, investment grade tenants and attractive price points.
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