THE NET LEASE AUTO PARTS REPORT MARCH 2015 AUTO PARTS STORE PROPERTIES MEDIAN ASKING CAP RATES
MARKET OVERVIEW
Q4 2013 (Previous)
Q4 2014 (Current)
Basis Point Change
Advance Auto Parts
7.20%
7.00%
-20
AutoZone
6.00%
5.98%
-2
O’Reilly Auto Parts
6.00%
5.95%
-5
Tenant
MEDIAN ASKING PRICE
Median Asking Price
Median Price Per Foot
Advance Auto Parts
$1,280,000
$183
AutoZone
$1,431,500
$202
O'Reilly Auto Parts
$1,780,436
$246
Tenant
PERCENTAGE OF AUTO PARTS STORES ON THE MARKEY BY TENANT
Percentage of Market
Tenant Advance Auto Parts
59.0%
AutoZone
15.7%
O’Reilly Auto Parts
25.3%
AUTO PARTS STORE PROPERTIES VS. RETAIL NET LEASE MARKET
Q4 2013 (Previous)
Q4 2014 (Current)
Auto Parts
6.22%
6.25%
Market
6.85%
6.50%
63
25
Tenant
Auto Parts Premium (bps)
Cap rates for the single tenant net leased auto parts store sector increased by three basis points from the fourth quarter of 2013 to the fourth quarter of 2014 to 6.25%. The auto parts sector, for the purpose of this report, is defined as Advance Auto Parts, Auto Zone and O’Reilly Auto Parts as they account for the highest percentage of transactions of properties tenanted by auto parts retailers. The primary reason for the insignificant change in cap rates during a period which overall retail cap rates declined by 35 basis points is due to the increased supply of vintage properties with shorter term leases. In the fourth quarter of 2014, Advance Auto Parts properties with less than 10 years remaining on their leases made up 69% of all Advance Auto Parts properties on the market. Auto part store properties remain in high demand among net lease investors as there are limited investment grade options priced below $2 million outside of dollar stores. Additionally, investors seek to acquire auto parts stores for residual value as they are typically constructed as vanilla boxes which are easier to re-tenant in the event the tenant vacates. In the fourth quarter of 2014, the supply of net leased auto parts store increased by 22%. Auto part retailers continue their expansion plans and opened more than 500 stores in 2014. Despite the combined 500 new store openings in 2014, the supply of new construction auto part stores only made up 21% of the sector. This can best be attributed to the fact that the auto part retailers own an increasingly high percentage of their locations. Furthermore, owners of properties with shorter term leases have added supply to the market to take advantage of the low cap rate environment as the consensus of net lease participants believe that the market strongly favors sellers. The retail industry continues to thrive as consumer demand for auto parts stores is increasing due to aging vehicles on the roads. A recent report by R.L. Polk & Co. and IHS Automotive shows that the average age of vehicles on the road has increased to 11.5 years. Additionally, the amount of vehicles over 12 years old is expected to increase 15% by 2019. Transaction volume in the auto parts sector should remain strong as investors have a positive outlook of the fundamentals of the auto parts industry. Recently constructed properties with long term leases should continue to be in the highest demand as these assets are the most sought after amongst 1031 buyers due to their lower absolute price point. Auto parts store properties with shorter lease terms located in areas with strong real estate fundamentals also remain in high demand.
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