Section 365: drive-to and drive-thru restaurants
This publication is intended for Valuation Officers. It may contain links to internal resources that are not available through this version.
This practice note applies to all drive-to and drive-thru restaurants
‘Roadside restaurants’, such as those that are or were occupied by Little Chef are Scat coded 238. They are covered separately by (Rating Manual Section 6 Part 3: Section 880) and have their own Practice Note. Many roadside restaurants are now occupied by brands such as McDonalds and Starbucks being recognised ‘Drive-To and Thru’ brands. Liaison and co-ordination between the Units is essential in all such cases especially at the interface between Generalist and Specialist responsibility.
1.1.0 Definition of Drive-To Restaurants
Drive -To Restaurants are defined as stand alone restaurants with on-site parking located mainly on retail parks, or leisure parks and adjacent to major road networks. Buildings are often modern purpose built and of modular construction which are built off site and assembled on site. They will have parking adjacent to the restaurant. They may also occupy units in terraces on retail and leisure sites with parking adjacent. This definition does not apply to High Street shop units occupied by the major operators which will be valued on a zoned basis with comparable evidence from those locations. Rating manual Section 6 Part 3: Section 920 - Shops and Shopping Centres
1.1.1 Definition of Drive Thru restaurants
Drive-Thru Restaurants are defined as stand alone mainly fast food restaurants which have a sign posted drive-thru facility. These often consist of a drive-thru lane around the main building with order and collection windows. The aim is to allow customers to order and collect food while staying in their cars. These premises will often have a car park and a seated restaurant. Main operators are McDonalds, KFC and Burger King with newer smaller operators such as Costa, Starbucks and Subway.
These operators occupy modern purpose built modular restaurants as well as converted former pubs. The main criteria is land where they can site the main building and incorporate the drive-thru lane around the building allowing for extra car parking for customers who wish to eat inside the restaurant.
2. List description and special category code
List description: Resturant and premises Scat code: Drive-to 091 Drive-thru: 092 Scat suffix: S
3. Responsible terms
3.1 These classes are being dealt with as deemed appropriate by each Unit with coordination essential to maintain consistency.
3.2 Responsibility for inspection, survey and valuation rests with caseworkers who have received specialist training and who have knowledge of this class. The Class Coordination Team provides support.
3.3 It is anticipated that each Unit will have a named individual responsible for the class. More than one named individual is recommended for succession planning.
3.4 It is also recommended that each Unit should allocate a named co-ordinator, or Lead Valuer, to act as a point of contact within the Unit. This Lead Valuer will be responsible for assisting in the delivery of the Unit’s valuation scheme and also for liaising on value and technical issues with other Lead Valuers across adjoining Units. The Lead Valuer will be responsible for ensuring compliance with this section.
4.1 Co-ordination responsibilities are set out in Rating manual - Section 6 Part 1: Co-ordination
4.2 The Drive-To/ Drive-Thru Class Co-ordination Team (CCT) has overall responsibility for the co-ordination of this class. The team are responsible for the approach to and the accuracy and consistency of Drive-To/ Drive-Thru valuations. This instruction describes the valuation basis and NVU will provide advice as necessary during the life of the rating lists.
4.3 Caseworkers have a responsibility to:
- follow the advice given at all times – Practice Notes are mandatory
- seek advice from the co-ordination team before valuing a new hereditament
- not to depart from the guidance given on appeals or maintenance work, without approval from the Class Co-ordination Team.
4.4 Drive-To (Scat Code 091) and Drive-Thru (Scat Code 092) restaurants are now being dealt with by both specialists and generalist caseworkers depending on local arrangements and as a consequence responsibility for ensuring effective co-ordination lies with CCT members for this class. The appropriate SCAT suffix is S.
4.5 Initial co-ordination for R2017 will be led by the CCT members, including co-ordination at the interface between Generalist and Specialist.
5. Legal Framework
5.1 There is no specific legal framework in relation to this class of property.
6. Survey Requirements
6.1 Inspections should be carried out in accordance with the Valuation Office Agency Code of Practice.
6.2 Drive-To and Drive-Thru Restaurants are measured to Gross Internal Area (GIA) in accordance with the RICS Code of Measuring Practice 6th Edition or its replacement. Gross Internal Area (GIA)
6.3 An inspection checklist is appended to this section at Appendix 1. It should be completed for all new properties and updated for maintenance work and stored in the property folder of the Electronic Document Records Management (EDRM) system.
6.4 The Survey Template can be found in EDRM. This will need to be completed as part of the inspection process. The checklist at Appendix 1 identifies the information that will need to be gathered in order to properly complete the survey of a drive to/thru restaurant.
6.5 One line entry should be recorded for the main space to include the restaurant, food preparation and kitchen areas to include all staff accommodation. For two-storey restaurants use Ground floor and First floor.
6.6 Where freezer and chiller pods are attached to the building these should also be measured to GIA but recorded as an ‘other addition’. These pods are attached to the main building and the cladding often matches the outside decor, however these pods are prefabricated off site and transported to the site and connected to the main building. See valuation approach in section 8.
6.7 Outside storage units whether they are purpose built or containers should be measured to GIA and recorded as a separate line entry.
6.8 Many different sub-location codes have historically been used to value these types of property across the country. It is recommended that each unit use the SCAT code of each type of property (091 or 092), preceded by a Unit prefix as shown below. For example Drive-To restaurants in North West Unit would have a sub-location code of NW91.
|Unit||Drive-To Subloc||Drive-Thru Subloc|
|South West Unit||SW91||SW92|
|North East Unit||NE91||NE92|
|North West Unit||NW91||NW92|
6.9 Car parking spaces and external areas should be recorded but their value will be reflected in the overall assessment and not valued as a separate item.
6.10 Air conditioning should be recorded where it exists.
6.11 A record of any Wi-Fi and the provider recorded if this can be identified and requires a separate unit of assessment.
6.12 Opening times should be recorded and whether open 24 hours.
7. Survey Capture
7.1 Rating surveys should be captured on the Rating Support Application (RSA) and plans and surveys stored in the property folder of the Electronic Document Record Management system (EDRM).
8. Valuation Approach
8.1 Rental Adjustment and Analysis In the vast majority of cases leases relate to a ‘shell’ only and an adjustment to the rent paid will be needed to reflect the value of the tenant’s rateable fitting out. It is recommended that 10% be added to shell rents, to reflect the standard of fitting out typical of this class of property compared with the unfitted demise; this addition includes air-conditioning which is a normal feature and invariably a tenant’s improvement. Some tenants may have paid rents for buildings that have since been converted and it is important to analyse using the correct demised areas.
8.2 The Freezer / Chiller units (also referred to as ‘chiller pods’) which have traditionally been found attached to the rear of most McDonald’s prefabricated modular drive-thru restaurants and on some of the newer KFC units are now being added to some Pizza Huts. These are almost invariably a tenant’s improvement and not included in the rent. The pod may be accessed wholly internally, either via a lobby or direct from the main area, or externally if no lobby exists, but the pod itself is not located within the main shell of the building. The recommended 10% addition for fitting out does not reflect this additional accommodation. As a consequence, the adjusted rent should be analysed against the GIA excluding the freezer/ chiller pod.
8.3 Valuation Issues
The following paragraphs offer guidance in respect of valuation issues. The guidance generally follows the approach adopted for the 2005 and 2010 lists.
8.3.1 Freezer/ Chiller Pods
The value of chiller/ freezer pods at Drive-Thru Restaurants are to be valued at the rate stated in the Practice Note. The rate has been derived from the cost to build and install the pod.
8.3.2 There have been extensions to some restaurants and replacement of the pods with larger chiller/ freezer units. When dealing with appeal and maintenance casework it will be necessary to undertake a full inspection of such restaurants to ensure our survey records are correct before the rating assessment is altered.
8.3.3 This guidance is in respect of pre-fabricated chiller/ freezer pods that can be delivered to the site as a modular unit. Modular chiller/ freezer pods may also be found at KFC, Frankie and Benny’s, Pizza Hut, Burger King etc and the same rate should be applied.
8.3.4 The area of the pod should be captured as an other addition using codes ZO1 for Chiller and ZO2 for Freezer. Use of the two codes will give us future flexibility should we need it. Whichever code is used the description must be overwritten with ‘chiller/ freezer pod’ for example (if the pod combines the two functions). See Practice Note for valuation guidance.
8.3.5 Paragraphs 8.3.1 to 8.3.4 do not apply to Drive-To Restaurants or Drive-Thru Restaurants where the cold room is within the structure of the building. Chiller/ Freezer units situated internally (ie under the main roof space) are to be valued at the restaurant rate.
8.3.6 Paragraphs 8.3.1 to 8.3.4 do not apply to cold rooms found in two-storey pre-fabricated McDonalds Drive-Thru and Drive-To restaurants where they form part of the main building.
8.3.7 Non Ground Floor Accommodation
The majority of upper floor accommodation is found in converted units such as former pubs. In these cases the first floors are often used for staff accommodation and administration use only. Some of this accommodation is often surplus to requirement comprising the living accommodation of the former public house.
8.3.8 Unfitted/ Disused Accommodation
In a small number of cases, mainly McDonalds, converted shops and public houses, areas of basement/ first floor accommodation, are disused, apart from occasional rough storage. This accommodation, which is unfitted/ shell quality should be valued at 25% of the appropriate £/m².
8.3.9 Drive-thru adjustment for quantum
In certain instances it may be appropriate to make an adjustment to the ‘standard’ price per m² when valuing larger format Drive-Thru Restaurants.
8.3.10 Adjustment for quantum does NOT apply to Drive-To restaurants, which are generally larger, often significantly, than Drive-Thrus and serve an increasingly identifiably different market.
8.3.11 A standard size Drive-Thru is taken to be 250-350 m². However, operators new to the Drive Thru market such as Costa are constructing smaller units for their own occupation.
8.3.12 Care should be taken with quantum where local rental evidence is derived from smaller units. Where there is little evidence some reference to previous agreements can be considered and whether the final rateable value seems fair and reasonable.
8.3.13 External Stores
Stores within the enclosed yard area may either be block or pre fabricated construction and may be attached to the corral walls. These stores will generally be valued at 25% of the restaurant rate.
8.3.14 Play areas
In the absence of direct rental evidence to the contrary, dedicated play areas are to be valued in accordance with the following table:
|Building Type||Full A3 unrestricted permission||Restricted non A3 use|
|As Main building||100%||70%|
|Full height Glass and Steel||80%||50%|
Areas must be separately recorded in RSA and reductions carried out within prescribed adjustments using QAL and a suitable description.
8.3.15 Parking The basis of valuation reflects parking so an “inclusive” Car Parking table should be used. Where there is insufficient or shared parking only this will be reflected in the matrix price that has been derived from the evidence.
8.4 Diverse rental evidence
Where it is found that varying levels of rent have been agreed on units in the same location (usually Retail or Leisure Park) consideration should be given to whether such factors as the relative positions and size of the units provide explanation. If there is no clear reason for the difference, it is reasonable to assume that negotiating strengths and the requirements of the Park ‘mix’ have played a part. In such instances it is recommended that all the adjusted rents are included in the ‘basket’ and, having considered the weighting that should be attributed to each, a ‘fair and reasonable’ rental level should be determined.
9. Valuation Support
The following sources are available to Referencers and Valuers dealing with the maintenance and defence of Roadside Restaurants.
- Rating Support Application (RSA)
- Class coordination team - Retail 3
- National Valuation Unit
Drive-To, Drive-Thru and Roadside Restaurants: Inspection Checklist (GIA)
Inspections should be carried out in accordance with the Valuation Office Agency Code of Practice.
Occupier/ Name of establishment/ Name of Franchisee.
Address including postcode:
Drive to/ thru type: Purpose built or converted eg: Public House, Retail Warehouse.
Planning: Record Use class on RSA survey.
Location: Main road, Retail Park, Leisure Park etc (Name of Retail Park/Leisure Park) If on retail / leisure park please note position especially in relation to other Drive-to , Drive-thru's.
Whether in a residential area and the degree of affluence
Nearby amenities and leisure uses for example cinemas and tourist attractions.
Any restrictions on access; Any year round or seasonal trade restrictions
If remotely located note whether a 'destination' establishment. Why do customers visit?
Photographs should be taken to show the immediate surroundings.
Car Parking: as part of hereditament - Car parking for use of customers, noting number of spaces and location, access and restrictions.
Parking facilities nearby: Car parks and availability of on-street parking.
Opening Hours: 24hr opening?
Tenure: If rented the amount payable, when effective and basis agreed, lease term and if any incentives and other factors affecting the rent.
Areas for private functions: separate from the main dining area. Play/Party areas etc.
Building - External
Construction. Approximate age; whether the property is a Listed Building; any particular architectural features.
Purpose built; Main structural alterations - for example if converted from previous use. Number of floors; position and prominence of property and any particular aspect. Access and limitations to entrance.
Photographs should be taken of the main elevations of the front and rear of the property
External ancillary areas such as gardens, terraces and smoking facilities.
Outside seating areas - noting amount and whether part of the hereditament or not.
Note the characteristics of the Drive Thru lane(s)
Building - Internal
Date restaurant refurbished
Any tenant's improvements and fitting out works. Whether excluded from the rent paid. Obtain costs where possible.
Accommodation GIA: main space to include the restaurant, food preparation and kitchen areas to include all staff accommodation. Structure and quality of finish
Whether the premises are predominately non-ground floor
Levels of floors (eg GF; FF)
Natural lighting – Good Natural light or lacking
Layout of public areas
Chiller / Freezer Pod: Where freezer and chiller pods are attached to the building these should also be measured to GIA but recorded as an ‘other addition’. These pods are attached to the main building and the cladding often matches the outside decor, however these pods are prefabricated off site and transported to the site and connected to the main building.
Outside storage units either purpose built or containers should be measured to GIA and recorded as a separate line entry.
Whether there is any unused/ surplus space
Any passenger or food lifts
A record of any Wi-Fi and the provider recorded if this can be identified and requires a separate unit of assessment.
Any Disability Discrimination Act adaptations.
Photograph examples of the main accommodation uses, including the dining area, kitchen and servery.
Plant and Machinery Details of any items present should be noted. For rateability and valuation, reference should be made to the VOA Rating Cost Guide. Rating Manual: Section 6 Part 5 - Plant and Machinery
Fire Precautions Sprinklers Security CCTV
Air Conditioning (age) Cassette or ducted. Extent of area covered. Air-conditioned areas need to be identified separately on the survey.
Record make of system.
Heating. Fuel. System
Date of survey
This inspection checklist should be used for Drive-To; Drive-Thru and Roadside Restaurants and completed on site. Whilst carrying out the survey special attention should be given to the following features:
Practice note 2017
1. Market Appraisal
Since 01-Apr-2008 the UK economy has experienced turbulent times in terms of economic performance, however, the A3 restaurant sector does not appear to have experienced difficulties to quite the same extent as other retail operators.
1.2 There has been a dramatic rise in discount vouchers and saver meal menu’s in many sections of the food retailing business. However restaurant openings have increased, seeing growth in the strength of popularity for both drive-to and drive-thru restaurants, with many landlords looking for the attractive covenant names.
1.3 Operators such as McDonalds, KFC, and now coffee company chains, such as Costa and Starbucks, continue to be active in the drive-thru market, whilst names such as Frankie and Benny’s, Chiquito’s, Nando’s and Prezzo have expanded their outlets in the drive-to sector of the market.
1.4 Rents show two different rental markets and it is best to look at these sectors separately:
1.5 The drive-thru sector as a whole has expanded. Both McDonalds and KFC have development site ‘hit lists’, with both looking to expand their drive-thru businesses by a reported 300-400 sites each within the next 10 years. Naturally, this may give rise to a future saturation of the market, however, at present, their expansion plans appear to be showing an increase in portfolio between 40-50 stores per year from 2014 - Market Knowledge Index
1.6 McDonalds particularly have been seeking planning permission to operate their drive-thru units for 24 hours per day, and currently have an extensive range of products on offer.
1.7 McDonalds have been relatively successful in obtaining former Little Chef units, and converting them into drive-thru units, and now appear to be looking to develop a new purpose built two-storey concept unit, with drive-thru facility throughout the country.
1.8 KFC on the other hand appear to be prepared to wait for a site that fits their particular model and in their target locations.
1.9 Some of the deals done have been by the coffee company operators. This may lead to an increase in rental levels on such retail/ leisure parks offering the coffee shop range, however, that remains to be seen. They have big expansion plans in their drive-thru market concept, and in 2013 were hoping to have 70 - 80 drive-thru branches within 5 years.
1.10 Likewise, 2014 saw a Starbucks drive-thru open in Milton Keynes, and they are to open a further 200 new drive-thru restaurants over the next 5 years. Starbucks have also taken on some vacant former Little Chef roadside restaurants guided by local rents. This appears to be a test to see if the market for their concept is viable. These rents should be treated with caution as they often relate to the former buildings.
1.11 The general increase in popularity of chain restaurants has seen a keen increase in new openings since 2008, particularly on retail/ leisure park locations.
1.12 All of the main brands are expanding into large leisure venues such as stand-alone restaurants at the O2 in Greenwich and other tourist attractions.
1.14 The Restaurant Group, formerly City Centre Restaurants, who operate Frankie’s, Chiquito’s, Garfunkel’s and Coast To Coast have been very busy in the market and continue to grow with 5 new F&B openings in December 2014 alone.
1.15 Prezzo, the Italian food chain, have moved from strength to strength since the last AVD, opening some 50 new stores since, putting themselves firmly in competition with the likes of Pizza Hut, Pizza Express, Zizzi and Ask.
2. Changes From The Last Practice Note
2.1 There have been no changes in approach from the 2010 Practice Note except with regard to the valuation of first floor restaurant accommodation in stand-alone restaurants.
3. Ratepayer Discussions
3.1 Initial discussions have taken place with representatives of the industry and are ongoing.
4. Valuation Scheme
4.1 Rental Information
It is still expected that detailed rental schedules will be provided by the main operators (or their agents). Some of this information is being supplied by VORC to the MIT. Headline rents on new lettings appear to have been holding up despite the economic downturn in previous years although these may include more incentives than granted previously.
4.2 Rents quoted may relate to franchise rents rather than the rent of the individual unit. A franchise rent includes payment for branding, goodwill, non-rateable items etc. Some rents are also tied such that the landlord agrees to buy the new building being constructed for the tenant, the purchase being either from the tenant or from a connected supplier. Care needs to be taken to fully understand the whole deal and to ensure that rents are adjusted in line with the statutory hypothesis.
4.3 Non Ground Floor Accommodation
In the absence of direct rental evidence to the contrary, first floor and basement/ lower ground floor accommodation should be valued at 50% of the ground floor £/m². These factors are present in the analysis and valuation scales.
4.4 Both McDonalds and KFC have been opening two-storey purpose built drive-thru restaurants known as ‘double deckers’. The first floors in these premises have lift access and often house two-thirds of the restaurant seating and customer washrooms. These are very different to converted properties.
4.5 Accommodation found on second floors, or in a basement, particularly in a unit which is a converted public house, should be analysed and valued using a scale factor of 25% - reference should be made to the CCT member for the particular unit, should there be any queries over relativities.
When valuing large format drive-thru restaurants (as opposed to drive-to restaurants) regard may be had (in the absence of evidence to the contrary) to the quantum scale agreed for the 2005 and 2010 rating lists. A standard size drive-thru is taken to be 250 – 350m².
It is noted that operators new to the drive-thru market are constructing smaller units for their own occupation. The quantum adjustment guidance is as follows (the allowance should be interpolated within size bands):
|Size Band||Quantum Allowance|
|0 – 374m||Nil|
|375 – 399m||0 to 5.0%|
|400 – 499m||5.0% to 12.5%|
|500 – 600m||12.5% - 17.5%|
|600 – 750m||17.5% to 25.0%|
This guidance should only be adopted where there is insufficient reliable rental evidence upon which the quantum effect can be judged. This means that the rental evidence should be re-examined for the 2017 List. This is particularly important in relation to the new “double-decker” units. The adjustment will be made as an end adjustment in the valuation.
4.7 Freezer/ Chiller Pods (drive-thru only)
‘Other additions’ tables should be amended so that these items are valued at a rate of £90.00/m². The area of the pod should be captured as an ‘other addition’ using codes ZO1 for Chiller and ZO2 for Freezer.
4.8 Valuations should be in an address based matrix across a range of Billing Authorities.
4.9 Car parking should be reflected in the unit value and the car parking table WCREFLECT1 adopted.