Car wash net lease investment properties have been one of the darlings of the net lease sector over the last few years as the business model has transitioned to being subscription-based, operators have become more sophisticated, and tax incentives like bonus depreciation have made these very attractive investments for retail or 1031 investors. The excitement and development in the car wash space has provided many investors with what they expected to be a long-term passive investment but has ended up being a nightmare for some owners and a ticking time bomb for others. The major threats that are affecting net lease investors who own car washes are:

1. The number of car washes, specifically the express model, in certain markets across the United States, has increased 2-5x in the last five years.
2. Average revenue per car wash location has been on the decline as consumers have more options to choose from.
3. Operating expenses for taxes, insurance, labor, maintenance, management, etc, have consistently increased.
4. This average decrease in revenue combined with an increase in expenses has put substantial operational strain on operators resulting in increasing lease defaults, bankruptcies, a re-structure or complete pause of growth, or subleasing to other operators.
5. As the average consumer's economic status decreases evidenced by an increase in credit card debt, home and auto mortgage rates increasing, student loan payments resuming in September and inflation, there is strong reason to believe that over the next 12-18 months, many consumers who get their car washed, specifically subscription members, will be making a financial decision to decrease frequency or eliminate their car wash subscription if faced with choosing between that and putting food in the refrigerator.

Growth and Saturation

In a testament to the ever-evolving nature of the business, certain markets across the United States especially major markets of Texas and Florida with dense cities and inexpensive land have witnessed a remarkable surge in the number of operating car washes over the past five years. The next five years show no signs of slowing down, as approximately 3.1 million square feet of car wash space are under construction across the U.S., according to CoStar Group.