Casual Dining Making Millennial-Focused Adjustments

Many in the sector have changed with the times, but others still have work to do.

CHICAGO—Millennials have disrupted the office sector with their preferences for open collaborative environments, but they are also disrupting the world of restaurants with their preferences for healthy food and more home delivery. As a result, investors in the net lease casual dining sector have grown a bit more cautious, and the most sought-after brands are the ones that have adjusted to the times.

Applebee’s is perhaps the best example of a chain that fell out of favor with its next generation of customers, and now has to make painful adjustments. The negative publicity has had an impact on investors. In the past year, cap rates for franchisee-operated Applebee’s increased 46 bps to 6.7%, according to a new report on the sector from the Boulder Group, a Wilmette, IL-based net lease firm. And the median rates for IHOP, another chain undergoing a struggle, increased 20 bps to 6.4%.