Surprised?
I’ve been surprised to find how many people think that Dollar General, Starbucks, JCPenney, Chipotle, TJ Maxx, and most companies own the land and buildings they operate from. They don’t…and only a small fraction of US companies do. Buying the land and paying for the improvements takes an enormous amount of capital and other resources. It is true that McDonald’s owns 56% of the land it operates from as MCD…but almost 100% of its franchise stores operate from leased spaces.
Why Don’t Most Companies Own Their Own Real Estate?
American companies are under pressure from investors to perform every quarter…most don’t have a 10- or 25-year plan for success, so current-term focus on profits is the norm. Tying up capital in real estate is harder to justify, but there is a potential downside of not doing so, too. The vagaries of the market mean that in hard times, expenses are harder to trim…and the first thing to go is staff. During the Great Recession, IKEA, which owned all of its own stores, didn’t lay off staff partially because owning its own real estate meant its occupancy costs were much lower.
Exceptions
While IKEA is the best example of a company that owns 100% of the real estate it operates from, Costco owns 81% of the real estate; Walmart owns a similar percentage of the land it operates from but leases the buildings for many of its 4,611 units. Target is another company that owns most of the land its stores occupy, but many of their stores have ground leases.