New Drive Thru Location - How to Evaluate Rent?

[drivethru]

I am the owner of a new drive thru location. I plan to lease it and I'd appreciate help assessing its value.

There are 24,000 cars/day on major commuter road. 90% local traffic. Traffic can cue for about 200 ft. Building will be 15 ft X 28 ft and have two windows. Possible to add order kiosk also. Traffic flow around building is good.

I've read about the ".5-1.5% rule" for assessing sales. How does that rule go and how would that relate to rental value?

Thanks.

 

[TonyDiCorpo]

Remember that VPD alone cannot be used to get accurate #'s if the rent is going to have to be low for a tenant to make an decent living. if u have a 24k vpd that is low for the coffee business unless there is really good foot traffic, a good daytime and night resident count and possibly even a college, hospital and corp park nearby. We usually look for a min of 35k vpd in new locations plus the daytime/night resident demographic. Having said that however, to answer your question, if u want to attract a coffee tenant you need to be in the $1800/mo rent range, depending on what else is in the area. also the space needs to be on the commute side of the street to get the morning drive-thru traffic. Market rents usually do not work for the coffee business since the margin is so low.

i use a 1% as a rule. take the VPD x capture rate % x avg days per mo x avg sale $ x 10% (rent should be no more than 10% of mo or yrly sales). so in this situation it would be: 24,000 x 1% = 240 cars/day. 240 x 30 days = 7200 cars/mo. avg per ticket sales are approx $2.50 ea so that would be as: 7200 cars x $2.50 ea = $18,000/mo reasonable amount of sales to expect per mo. $18,000 x 10% = $1800/mo asking rent.

Keep in mind these are pro-forma estimates and based on the traffic, averaged for both VPD and foot. also we use a $2.50 avg tkt price becuz some customers only buy drip coffee and some buy lattes. some also upsell with a pastry or other food offering. hope this helps.

 

[drivethru]

Thanks, Tony. Yeah, we're on the morning side. The way the road curves cars stare at the side of my building for 20 seconds before they drive past, so plenty of time to convert them. OTOH, there are no desirable local customers, it's all commuter traffic. I'm hoping for a $2k/m rent, looks like I'm in the ballpark.

I'm a bit curious about why there's a starbucks, DD, and Macs all within a mile of me on the same road if the numbers don't work.

 

[alsterling]

Tony... very interesting reading... especially the formula you're using. I was hopeing that the poster would give some city location info?

 

[drivethru]

I would have mentioned it, but I thought that'd be spammy.

Portland, Maine. Forest Ave.

 

[graham]

drivethru, I'm not sure if you ended up leasing that location but in my previous life I was a commercial real estate lease auditor. I even audited a ton of leases for Starbucks and helped them recover tens of thousands of dollars of over-payments. I don't do that work anymore but if you're wondering if you're paying more than you agreed to on your lease I'd be happy to help!