Drive-thru and convenience forward funding

Drive-thru and convenience forward funding is a structure in which an institution funds the construction of a small roadside single-let unit before completion, releases capital in staged drawdowns against certified progress, and takes title as an income-producing asset let to a food, beverage or convenience covenant. The building is compact, commonly 1,500 to 4,000 sq ft on a plot of half an acre to one acre, and the pre-let is agreed with a named operator before the investor commits. Because a single unit produces a rent of only around £80,000 to £250,000 per annum, and therefore a capital value well below the minimum lot size most institutions will underwrite, the sector is defined by aggregation: investors fund units in portfolios or commit programmatically to a developer’s rolling pipeline. This page sets out the market context, why institutions fund the sector, the structure variants, the site and covenant tests investors apply, indicative pricing, a worked example and the process specific to roadside units. For the mechanics of the structure, see our forward funding explainer.

The sector has grown from a niche into an established long-income allocation on the back of a sustained UK drive-thru expansion. Operators have found that a car-borne convenience format trades resiliently through downturns and that customers spend more per visit at a drive-thru than in-store, which has driven a rollout of new units across retail parks, arterial roads and roadside clusters. For investors this has created a steady supply of small, well-let, long-lease assets that can be assembled into a diversified income stream.

5.00% to 5.25%

Prime drive-thru net initial yield

Q2 2026

£5m to £40m

Portfolio or pipeline GDV range

8% to 12%

Developer return on cost

15 to 20 years

Typical unexpired lease term

Definition and drive-thru market context

The drive-thru and convenience sector comprises small single-let roadside units let to food, beverage and convenience operators on long leases. The occupier base is led by a small group of national brands. McDonald’s is the anchor covenant of the sector, occupying on the longest terms and regarded as close to a bond proxy; Starbucks, Costa and KFC have each accelerated roadside drive-thru rollouts and now represent a large share of new units; and convenience operators fill neighbourhood and roadside pitches alongside them. Franchisee-operated units, common for Starbucks, Costa and KFC, are underwritten on both the brand and the individual franchisee covenant. New units frequently open in clusters, with two or three brands sharing a single roadside scheme, and increasingly alongside rapid EV charging.

Named institutional activity in the sector is concentrated among long-income and triple-net buyers. LondonMetric, following its merger with LXi REIT, holds substantial roadside and convenience exposure and counts McDonald’s and Starbucks among its tenants, and is one of the most active UK owners of long-let roadside assets. Realty Income, the US triple-net specialist, has built a growing UK portfolio and applies the same net-lease discipline to roadside and convenience stock that it uses in its core market. Pension and annuity funds, and private property companies and roadside specialists that assemble and season portfolios for onward institutional sale, complete the buyer pool. The scarcity of ready-let standing portfolios at scale means much of this capital reaches the sector by funding development, unit by unit, which is why forward funding sits at the centre of how the asset class is assembled.

Why investors forward fund drive-thru and convenience units

Institutions forward fund drive-thru and convenience units to secure long-dated, inflation-linked, low-management income against strong national covenants at a yield inside the standing-asset market, then to build scale by repeating the exercise across a pipeline. A completed and let drive-thru produces exactly the income profile long-income buyers want: a single tenant on a 15 to 20 year lease, a simple building on a full repairing and insuring basis, and almost no ongoing asset management. Forward funding lets the investor buy that outcome before it exists, capturing a development margin and a yield discount in return for taking build-period risk on a short, low-complexity construction programme.

The covenant does most of the work. A McDonald’s, Starbucks, Costa or KFC lease carries a national brand with a long trading record and a proven roadside format, which supports the keenest pricing and satisfies annuity matching requirements. Reviews are typically RPI or CPI-linked, often with a collar and cap, or set as fixed uplifts, converting the rent into a bond-like stream with inflation protection. Management intensity is minimal because the tenant repairs and insures a single small building. The distinguishing attraction against larger long-income sectors is granularity: a portfolio of small units spreads covenant and location risk across many assets rather than concentrating it in one, and each unit is individually liquid to a wide pool of private and institutional buyers. That combination of long income, inflation linkage and diversification is why programmatic drive-thru funding competes with, and often prices inside, single large-lot alternatives.

“

A portfolio of small drive-thru units spreads covenant and location risk across many assets rather than concentrating it in one, which is why granularity, not lot size, is the sector’s core attraction.

Structure variants

Drive-thru and convenience forward funding divides into single-unit and programmatic multi-unit structures, with the lease review basis forming a further variation. The choice determines how capital is deployed, how the developer’s pipeline is financed and how covenant risk is spread.

A single-unit pre-let forward funding is the simplest form. The developer secures an agreement for lease with a named operator, and the investor funds one building with contracted income from practical completion. This suits private property companies and specialist funds that buy individual assets, but a single small unit rarely satisfies an institution’s minimum deployment on its own. The relationship between the funding and the pre-let is set out in our pre-let structures guide.

A programmatic multi-unit funding is the structure that brings the sector to institutional scale. The investor commits to fund a developer’s rolling pipeline of roadside units against agreed criteria, covenant, minimum lease term, yield and specification, and draws down on each site as it is secured and built. This converts a series of sub-institutional lots into a single sizeable commitment, gives the developer certainty of funding across its pipeline, and lets the investor assemble a diversified portfolio at a blended yield without bidding for each asset in the open market. It is the defining approach in the sector precisely because the individual lot size is low.

The lease review basis is a structural choice in its own right. An index-linked lease ties rent to RPI or CPI, usually with a collar and cap, delivering inflation protection valued by annuity buyers. A fixed-uplift lease sets predetermined increases at each review, giving a fully predictable cash flow. Because the sector spans several operators with different standard lease forms, a portfolio often blends both bases, and the investor prices the mix. The land ownership question, and whether the investor takes title from the golden brick or from an earlier point, is negotiated per unit and affects risk and tax treatment.

What investors require

Investors require a strong operator covenant, a genuine roadside pitch, a workable site geometry and an institutional specification, repeated reliably across a pipeline. Site selection is more demanding than the small building might suggest, because a drive-thru only functions where the plot can accommodate the operational format. The core tests are set out below.

Location is assessed on drive-time convenience rather than town-centre footfall. Prime pitches sit on established retail parks, arterial roads and roadside clusters where passing traffic and nearby residential catchment support all-day trade. Covenant is the decisive pricing test: national operators such as McDonald’s, Starbucks, Costa and KFC are viewed most favourably, with McDonald’s on the longest terms treated as near bond-proxy income, while franchisee units require the franchisee’s own financial standing to be underwritten alongside the brand. Specification is tested for re-lettability, EPC A and, on new units, PV-ready roofs and EV provision, so that a unit can be re-let or repurposed if the first operator vacates. Scale is achieved through aggregation: because a single unit is only £1.5m to £6m of value, investors require a portfolio or a programmatic pipeline, commonly £5m to £40m of gross development value in total, to place capital efficiently.

Indicative pricing dynamics

Prime drive-thru units let to a strong national covenant on a long index-linked lease price at around 5.00% to 5.25% net initial yield as at Q2 2026, with weaker covenants, shorter terms and secondary pitches pricing wider towards and beyond 6.00%. Pricing is a function of covenant strength, lease length, review basis, pitch quality and, for a portfolio, the blend across units. The table below is indicative and should be read against the date stamp; all figures are net initial yields.

Net initial yield by covenant and pitch As at Q2 2026

Prime drive-thru

5.00% to 5.25%

Strong F&B, shorter

5.25% to 5.75%

Convenience secondary

5.75% to 6.00%

Weaker or short covenant

6.00% to 6.50%

5 % 6 %

Profile	Indicative net initial yield (as at Q2 2026)
Prime drive-thru, strong national covenant, 20 year-plus RPI lease	5.00% to 5.25%
Strong food and beverage covenant, 15 year term or fixed uplifts	5.25% to 5.75%
Convenience operator or secondary pitch	5.75% to 6.00%
Weaker covenant, franchisee only, or short unexpired term	6.00% and wider

The clearest dynamic is the premium paid for the strongest covenant and the longest term. A McDonald’s unit on a 20 year-plus lease trades meaningfully inside a franchisee-operated unit of the same size, because investors price the covenant and the indexation ahead of the building. Portfolio pricing then blends the units: a well-diversified programmatic portfolio of prime covenants can price at a keener blended yield than the weakest single unit within it, which is part of the appeal of the multi-unit approach. Developer return on cost commonly runs at around 8 to 12 per cent, lower in percentage terms than larger sectors because the units are simple, quick to build and low-risk, but earned rapidly and repeatedly across a pipeline. For definitions of the pricing terms used here, including net initial yield, see our glossary. Live pricing should always be confirmed against current market evidence.

Worked example

Panel Investor A, an annuity-backed institution, forward funds a programmatic portfolio of four roadside drive-thru units at an indicative blended net initial yield of 5.35%. The figures below are illustrative and rounded to show how a typical structure is built up; they are not a specific transaction.

Metric	Indicative figure
Portfolio	4 drive-thru units across two roadside schemes
Occupiers	Two prime national F&B covenants, RPI-linked and fixed-uplift leases
Unit size range	1,800 to 3,200 sq ft each
Lease terms and WALT at completion	15 to 20 years, blended 17.5 years
Aggregate passing rent	£990,000 per annum
Gross development value	£18.5m
Blended net initial yield on GDV	5.35%
Total development cost	£16.4m to £16.7m
Developer return	Approximately 11% on cost
Drawdown period	7 to 9 months per unit, phased across the pipeline

In this structure Panel Investor A commits to fund all four units against agreed covenant and lease criteria, acquires each land interest as the site is secured, and funds certified construction cost in drawdowns across each unit’s short programme. Each pre-let is in place before the relevant unit completes, so the RPI-linked and fixed-uplift income is contracted from the day each operator takes access. The developer earns a profit of roughly 11 per cent on the cost it delivers, paid through the drawdown mechanism and realised unit by unit rather than all at completion. The investor assembles a diversified £18.5m portfolio of EPC A units let for a blended 17.5 years to strong national covenants, a profile that supports the sub-5.5% blended yield and can be grown by extending the same commitment across further sites.

Process and timeline specifics for roadside units

The process runs from heads of terms through unconditional exchange to phased drawdowns and completion at practical completion of each unit, aligned with each agreement for lease. Heads of terms fix the yield or yield matrix, the funding criteria for a pipeline, the land basis, the development obligations and the profit mechanism. Due diligence covers three parallel streams: legal, on title, the building contract and the funding agreement; technical, on the site geometry, specification, programme and cost plan; and covenant, on the operator, and on the franchisee where relevant, and the drafting of each agreement for lease. Because the building is simple and the covenants are usually known national operators, this phase commonly runs six to twelve weeks to unconditional exchange, shorter than large single-asset sectors.

Timing is governed by the interplay between site delivery and the pre-let, repeated across the pipeline. Each agreement for lease fixes the operator’s obligation to take a lease on practical completion of a unit built to a defined specification, so its terms, longstop dates and specification schedule are settled before the investor is committed on that unit. Construction of an individual drive-thru typically runs six to nine months, with drawdowns certified against progress, so a programmatic portfolio completes and starts producing income unit by unit rather than in a single event. Investors weighing this granular, roadside long income against a single large-lot alternative should review our supermarket forward funding pillar, and those considering the co-located charging opportunity may find our EV charging forward funding pillar a useful comparison. Those comparing funding against a deferred purchase can read our forward funding versus forward purchase analysis. To discuss a live drive-thru scheme or pipeline, contact our team.