Economic Impacts on Coffee Shops

The U.S. coffee shop market continues to expand despite economic volatility, with leading brands like Starbucks, Dutch Bros, and 7 Brew pursuing strategic growth amid fluctuating interest rates and inflation.

As of March 2025, the U.S. economy continues to navigate a complex environment shaped by volatile interest rates, a fluctuating stock market, persistent inflation, and ongoing challenges within the commercial real estate sector. The Federal Reserve recently opted to maintain its benchmark interest rate in the 4.25%-4.5% range, reflecting a cautious approach amid prevailing economic uncertainties.

For NNN single-tenant properties, interest rates currently stand at approximately 6.32%, according to Select Commercial Funding, an improvement from the start of the year, but still significantly higher than the historically low rates observed in 2021 and 2022. Meanwhile, the stock market exhibited notable volatility, with the S&P 500 recently experiencing a four-week losing streak. Investor sentiment remains cautious, driven by concerns over potential stagflation, an economic scenario characterized by sluggish growth and sustained inflation.

Inflation remains a critical challenge, prompting the Federal Reserve to revise its projections upward, reinforcing the notion that price stability remains elusive. Additionally, the commercial real estate sector faces continued headwinds from elevated interest rates, which have dampened investment activity and slowed transaction volume, contributing to broader economic uncertainty.

Coffee Shop Market Trends

In this fluctuating economic landscape, the coffee shop sector emerged as a particularly dynamic segment within commercial real estate. Leading brands, such as Starbucks, Dutch Bros, Ziggi’s Coffee, and Scooter’s Coffee, have undergone notable leadership changes or additions in recent months, while many continue to pursue aggressive expansion strategies.

With coffee consumption steadily rising, the industry is projected to grow by approximately $50 billion between 2025 and 2029. However, companies must strike a balance between expansion and market demand to prevent declines in per-location sales. Strategic site selection and operational efficiency will be crucial for sustaining long-term profitability and growth.

To stay competitive, coffee brands are increasingly focused on setting industry trends, rather than merely following them. A key strategy involves seasonal product offerings, which have evolved from limited-time promotions into powerful tools for building customer loyalty. By proactively shaping consumer preferences, companies can differentiate themselves in an increasingly crowded market.

Tenant Updates

Starbucks

Starbucks underwent significant transformations over the past year, reinforcing its growth trajectory and operational refinements. According to Placer AI, the company saw a 1.9% increase in store traffic in 2024 compared to the previous year, with revenue also trending upward. However, these gains have not fully offset the pandemic-driven decline in foot traffic.

A pivotal moment for Starbucks was the appointment of Brian Niccol, former CEO of Chipotle, as its new CEO, alongside other key hires, including Cathy Smith, former CFO of Nordstrom. Together, they are spearheading the Back to Starbucks strategy, emphasizing service, efficiency, and quality—the foundational principles that established Starbucks as a global industry leader.

While Niccol initially signaled a slowdown in store openings, he later clarified in February that Starbucks remains committed to expansion, with a long-term goal of doubling its U.S. store footprint. This growth strategy involves a comprehensive real estate review, including targeted renovations, new openings, and selective closures of underperforming stores.

On the real estate front, approximately 200 Starbucks properties have been listed for sale at any time over the past few months. As of March 31, these properties carried an average cap rate of 5.65% and had been on the market for an average of 144 days. At the same time, 41 of these properties have been sold, showing a lot of movement and buyers looking for these specific coffee shops in the marketplace.

Dutch Bros

Dutch Bros continues to solidify its position in the industry with a strategic, long-term approach to expansion. While its growth may not be as rapid as some competitors, its strategy remains deliberate and well-calculated. The company is focusing on expansion in the southern U.S. and select areas in the Northwest, with a broader vision to enter new markets.

After facing challenges in meeting expansion targets last year—leading to a temporary decline in stock value—Dutch Bros rebounded strongly in Q4 2024. The company reported a 34.9% year-over-year revenue increase, reaching $342.8 million, with same-store sales growing by 6.9%. Dutch Bros opened 32 locations in Q4 2024, bringing its total to 151 new shops for the year. Plans for at least 160 additional locations in 2025 further reinforce the company’s long-term growth ambitions.

Dutch Bros also raised its long-term store target from 4,000 to 7,000 locations. Beyond physical expansion, the company will launch mobile ordering in 2025 and expand its food menu in 2026 to enhance customer engagement. Dutch Bros will grow its food options by entering the consumer-packaged goods market, further diversifying its revenue streams.

Dutch Bros is currently the best-performing coffee shop investment, with properties trading at an average cap rate of 5.25% since January 2025. Strong investor confidence continues to drive demand, positioning Dutch Bros as a premier tenant in the coffee retail space.

Dunkin’

Dunkin’ remains a steady and strategic player, with franchisees playing a key role in its expansion. Many franchisees own the real estate on which their stores operate, often in strip centers, contributing to strong investor confidence.

In recent months, Dunkin’ has shifted its focus from food to beverages to enhance profit margins and align with evolving consumer preferences. The Next Generation restaurant model—which includes modern designs, innovative tap systems for cold beverages, and dedicated mobile order pickup areas—has been a significant driver of this transformation. Since launching its first NextGen location in 2018, Dunkin’ has expanded this concept rapidly, opening its 4,000th NextGen store in Jacksonville in July 2024.

This commitment to innovation and strategic growth positions Dunkin’ favorably in an increasingly competitive industry.

7 Brew

7 Brew continues its aggressive expansion, surpassing 300 locations across 31 states as of December 2024. Although the company initially set an ambitious goal of opening 500 stores in 2025, it added 43 new locations in Q1 2025, signaling strong momentum despite challenges in reaching its target.

Investor interest remains strong, with 7 Brew properties trading at an average cap rate of 6.21% in 2025. However, cap rates vary significantly based on location. For example, a newly-constructed property in Daytona Beach traded at a 6.00% cap rate earlier this year; meanwhile, Georgia has another new property with a cap rate of 7.00%.

With key leadership additions, including President Chris Dawson and Chief Marketing Officer Nick Chavez, 7 Brew is poised to strengthen brand awareness and customer engagement, further solidifying its position as a high-growth competitor in the drive-thru coffee space.

Other Emerging Coffee Brands

• Black Rock Coffee Bar: Expanding strategically, with 151 locations as of February 2025.
• Scooter’s Coffee: Continuing steady expansion.
• The Human Bean: Maintaining a selective franchise model with no royalty fees and a dedicated real estate team for operators.
• Ziggi’s Coffee: Appointed a new CMO to support expansion in Minnesota, competing with Caribou Coffee.
• Additional brands to watch: Caribou Coffee, Biggby Coffee, Black Rifle Coffee, and Gravity Coffee.

Florida Coffee Shop Market

Florida emerged as a key market for coffee shops, with properties trading at aggressive cap rates. Dutch Bros announced an aggressive expansion plan here, while 7 Brew intends to open 165 locations over the next five years. Florida is poised to be a model market for analyzing how intensified competition shapes chain strategies.