A fast-food or drive-through freehold is one of the most recognisable assets in Australian commercial property, and one of the most misunderstood. The buyer is not really purchasing a hamburger business. They are acquiring a single, well-located parcel of land improved with a purpose-built quick-service restaurant (QSR), leased on a long term to an operator whose brand draws traffic to that corner every day of the week. The income is contractual, the building is largely the tenant's problem, and the location does much of the heavy lifting.
These assets sit at the tighter end of the commercial yield spectrum precisely because investors prize their attributes: long initial lease terms, structured rent reviews, net or near-net outgoings recovery, and a tenant whose physical investment in the site makes leaving expensive. A McDonald's, KFC or Guzman y Gomez does not fit out a drive-through, install a kitchen and build a customer base only to walk away at the first review.
That said, not every drive-through is a blue-chip investment. The covenant behind the lease, the realism of the passing rent, the strength of the site, and the fine print of the lease all separate a genuinely defensive holding from an expensive piece of fast-food signage. This guide sets out what a buyer is really acquiring and how to test it.
The brand on the sign sells the burgers. The entity on the lease pays the rent. Confusing the two is the single most common mistake in fast-food property.
What a QSR freehold actually is
Most fast-food investments offered to private buyers are standalone, single-tenant freeholds: one title, one building, one tenant. The site is typically a corner or main-road position with a drive-through lane, on-site parking and prominent signage. The building is usually a modest, single-storey structure whose value is overwhelmingly in the land and the location rather than the bricks.
The economics resemble other net-lease convenience assets such as service stations and bottle shops: the investor owns the dirt and the shell, the operator runs the business and carries most of the running costs, and the lease binds the two together for a long period. Because the income stream is long and predictable, these assets are valued on commercial yields at the sharper end of the market, particularly where a corporate covenant underpins the rent.
1 The tenant landscape
Understanding who actually signs the lease is the foundation of QSR investing. The Australian fast-food market is dominated by a handful of brands, but the leasing entity behind each varies enormously.
The major operators
- McDonald's Australia — operates a mix of company-owned restaurants and licensed franchisees; many sites are held on long-term leases, and a McDonald's-backed covenant is regarded as among the strongest in the sector.
- KFC — the largest Australian operator is ASX-listed Collins Foods, which also runs Taco Bell in parts of the country; a Collins Foods lease carries a substantial listed-company covenant.
- Hungry Jack's — the Australian Burger King master, privately held within the Competitive Foods group.
- Guzman y Gomez (GYG) — an ASX-listed Mexican QSR with an aggressive drive-through rollout; lease covenants may sit with the corporate group or with individual franchisees depending on the site.
- Domino's Pizza Enterprises — ASX-listed, though many stores are franchisee-operated and often occupy strip rather than freestanding drive-through formats.
- Zambrero and Oporto (the latter part of the Craveable Brands stable alongside Red Rooster) — strong brands frequently leased through franchisees rather than the brand owner.
Why these are prized net-lease assets
QSR tenants are sticky for structural reasons. They invest heavily in fit-out and equipment, they build local customer habit and delivery-platform presence, and their site selection is rigorous, so a trading location is hard to replace. The result is long lease terms, low historical default rates among the majors, and demand from a deep pool of yield-focused buyers, including SMSF investors attracted to the set-and-forget income profile.
2 Lease structures and rent reviews
The lease is the asset. Two QSR freeholds with identical buildings can be worth materially different sums purely on lease terms.
Typical features
- Long initial terms. Fresh QSR leases commonly run 10, 15 or even 20 years, often with multiple further options, supporting a long weighted average lease expiry (WALE).
- Structured reviews. Rent typically grows by fixed annual percentages, by CPI, or by CPI-linked formulas, with market reviews sometimes appearing at option dates. Fixed reviews give the most predictable income; CPI reviews track inflation but can lag in low-inflation periods.
- Net or QSR-specific outgoings. Many QSR leases are net or close to it, with the tenant meeting council and water rates, insurance, and repairs and maintenance. The precise recovery position must be read from the lease, not assumed from the brand.
Because the income is largely contractual, these leases sit close to the triple-net (NNN) end of the spectrum, though true NNN, where the tenant also carries structural and capital costs, is less common in Australia than in the United States. A buyer must confirm exactly which outgoings are recoverable, whether land tax is recoverable (state retail-tenancy legislation restricts this in some circumstances), and who is responsible for the structure, roof and any future capital works.
| Lease feature | Investor-friendly | Worth scrutinising |
|---|---|---|
| Initial term remaining | 10+ years firm | Inside the option period; short firm term |
| Rent reviews | Fixed 3%+ or CPI-plus | Flat CPI in a low-inflation cycle |
| Outgoings | Net, fully recoverable | Gross, or land tax not recoverable |
| Covenant | Listed corporate or guaranteed | Single-site franchisee, no guarantee |
| Passing rent | At or below market | Over-rented above sustainable levels |
3 The franchisee-versus-franchisor covenant question
This is the question that defines risk in the sector. The brand above the door tells the buyer nothing reliable about who is legally bound to pay the rent.
A lease may be signed by the brand owner or a corporate subsidiary (a strong covenant), by an independent franchisee operating one or a few stores (a much thinner covenant), or by a franchisee with a guarantee from a parent entity or directors. A single-site franchisee with no guarantee is, in covenant terms, a small business, however famous the logo. If that operator fails, the brand has no contractual obligation to step in, and the landlord is left re-leasing the site.
Pricing should reflect this. A genuine corporate covenant trades at a sharper yield; a franchisee covenant should command a wider one to compensate for the additional risk. Treating a franchisee lease as if it carried corporate strength is how buyers overpay. Rigorous tenant due diligence on the actual lessee entity, its financial position, guarantees and trading history is non-negotiable here.
4 Site fundamentals
If the lease is the asset, the site is the insurance. A blue-chip tenant can still fail, and when the lease ends, the property is worth what the next operator, or an alternative use, will pay for the location. Strong fundamentals protect the downside.
What makes a drive-through site work
- Exposure and traffic. Corner or main-road positions with high passing-traffic counts are the lifeblood of QSR. Published traffic-volume data from state road authorities helps benchmark a claimed catchment.
- Drive-through functionality. Adequate vehicle stacking, clear circulation and easy ingress and egress matter enormously; a poorly designed lane throttles trade and undermines tenant performance.
- Parking and access. Sufficient on-site parking, dual access points where possible, and proximity to other traffic generators such as supermarkets, fuel and large-format retail.
- Planning and zoning. The permitted use, hours of operation, signage approvals and any conditions on the drive-through must be confirmed. Restrictive consent conditions can limit both trade and future redevelopment.
- Land area and shape. A larger, regular parcel preserves optionality, from re-tenanting to another QSR brand through to redevelopment for a different convenience use.
The land-rich, building-light nature of these sites is a feature. When the underlying parcel is genuinely well located, the investor's capital is anchored to enduring land value rather than a depreciating fast-food box.
5 Yields and pricing drivers
QSR freeholds typically trade at the tighter end of the commercial yield range, reflecting their long leases, defensive income and broad buyer appeal. Within the sector, yields vary with the covenant, the lease length and the location. A long lease to a listed operator on a prime metropolitan corner will price keenly; a single-site franchisee on a secondary regional road should price considerably wider, often by 100 to 200 basis points or more.
Yields are not static. They move with the broader cycle and, in particular, with the interest-rate environment, since net-lease assets are valued heavily on the spread between their income and the cost of debt. Any figure quoted in a marketing campaign should be benchmarked against current published transaction evidence and recent comparable sales rather than taken at face value. Key pricing drivers include:
- Covenant strength — corporate versus franchisee, and the presence of guarantees.
- Lease term remaining — firm years to expiry, not just headline term including options.
- Rent review structure — the quality and certainty of income growth.
- Location and land value — exposure, catchment and alternative-use potential.
- Passing-rent realism — whether the rent is sustainable or over-rented relative to market.
6 Buyer-side due diligence
QSR assets reward forensic, independent due diligence because the marketing gloss is usually thick and the genuine risks are specific. A buyer's checklist should cover, at minimum:
- The lease, in full. Firm term, options, review mechanics, outgoings recovery, make-good, assignment provisions and any incentives. Verify the passing rent against market evidence to test for over-renting.
- The lessee entity and covenant. Confirm exactly who signed, whether any guarantee exists, and the financial standing of the responsible party, not just the brand.
- Site and planning. Zoning, permitted use, drive-through and signage approvals, hours, and any conditions or encumbrances on title.
- Building and environmental. Structure, services and any contamination history; older convenience sites can carry environmental legacies that warrant a Phase 1 assessment.
- Outgoings and tax. Confirm recoverable versus non-recoverable outgoings, the land-tax position, and the GST treatment of the sale, including whether a going-concern exemption applies.
- Acquisition costs. Budget realistically for transaction costs, including commercial stamp duty, which varies by state and can be substantial.
Because the information memorandum is a selling document, every claim, the catchment, the WALE, the rent and the comparable sales, should be independently verified rather than accepted. An independent buyer's advocate, with no allegiance to the selling agent, is positioned to test these claims and negotiate on the buyer's behalf.
Frequently Asked Questions
Is a fast-food drive-through a good commercial investment?
It can be, when the lease is long, the rent is sustainable and the covenant is strong, because the income is contractual and the tenant carries most outgoings. The quality varies widely, however: a corporate-backed lease on a prime corner is very different from a single-site franchisee on a secondary road. The site's underlying land value is the ultimate protection if the tenant ever leaves.
What is the difference between a franchisee and a franchisor covenant?
A franchisor or corporate covenant means the brand owner or a corporate entity is legally responsible for the rent, which is a strong position. A franchisee covenant means an independent operator of one or a few stores signed the lease, so the brand has no obligation to pay if that operator fails. Buyers should price a franchisee lease at a wider yield to reflect the thinner covenant unless a substantial guarantee is in place.
What yield do fast-food properties trade at in Australia?
QSR freeholds generally sit at the tighter end of the commercial spectrum because of their long leases and defensive income, but actual yields move with the covenant, lease term, location and the interest-rate cycle. A strong corporate lease prices far more keenly than a single-site franchisee, often by 100 to 200 basis points or more. Any yield should be benchmarked against current published comparable sales rather than the marketing figure.
Who pays the outgoings on a fast-food lease?
Many QSR leases are net or close to it, with the tenant meeting council and water rates, insurance and repairs, though the exact position must be read from the lease rather than assumed from the brand. Recovery of land tax can be restricted under state retail-tenancy legislation in certain cases, and responsibility for the structure and major capital works varies. Confirming the precise outgoings split is essential to understanding the true net yield.