Auto parts stores remained in high demand among investors as 2017 drew to a close. And this demand isn’t expected to wane throughout 2018, according to the most recent research from The Boulder Group.
The Boulder Group recently published its fourth-quarter net lease auto parts report. According to the report, auto parts stores remain attractive to investors largely because there are so few investment-grade net-lease options priced under $2 million.
Dollar Stores fit into that category. But, as the Boulder Group says, dollar stores are usually located in tertiary markets. Auto parts store, though, usually sit in more attractive primary and secondary markets near major retailers.
Because of this, the Boulder Group predicts that transaction volume in the auto parts sector should remain active as investors continue to seek properties with investment-grade tenants at lower price points.
During the fourth quarter, cap rates for the single-tenant net-lease auto parts sector increased by 29 basis points when compared to the same quarter a year earlier, rising to 6.19 percent. During the same period, the overall net-lease retail market compressed by 12 basis points, according to the Boulder Group.
Cap rates rose for all three major auto parts players during the fourth quarter. These rates increased by 42 basis points for O’Reilly Auto Parts, 37 points for Advance Auto Parts and 7 points for AutoZone.
According to the report, the median asking cap rates for Advance Auto Parts stood at 6.75 percent during the fourth quarter. That figure was at 5.62 percent for AutoZone and 5.94 percent for O’Reilly Auto Parts. The median asking price for an Advance Auto Parts store during the quarter was more than $1.5 million. AutoZone had a median asking price of more than $1.7 million, while O’Reilly Auto Parts’ median asking price was $1.8 million.
How much do the big three dominate this sector? The Boulder Group reported that Advance Auto Parts holds 42.1 percent of the auto parts market, while AutoZone commands 29.8 percent and O’Reilly Auto Parts 28.1 percent.