Reviewed by Robert Mendieta Jr., CCIM — Associate Broker · Commercial Division · DRE #01422904
Last updated: October 14, 2026 · More CRE guides
An outparcel is the freestanding building site at the front of a shopping center, where a quick-service restaurant, bank branch or specialty retailer often sits. This guide is for center owners, pad buyers and single-tenant investors.
Not legal or tax advice. Apex Real Estate Services is not a law, tax or accounting firm. Consult your attorney and CPA before you sign a ground lease or record a parcel map.
What Is an Outparcel?
An outparcel, also called a pad site, is a freestanding parcel or building site on the edge of a shopping center, usually in front near the street. It is sold, ground-leased or leased with a building to a single user, such as a quick-service restaurant, bank or specialty retailer, that wants its own building, parking and visibility.
That is the short outparcel definition. The International Council of Shopping Centers (ICSC) Canadian retail standard places these sites “on the peripheries of shopping centres,” and an ICSC paper describes their users as stand-alone restaurants, banks and specialty retailers.
Key Takeaways
- Two names, one site. Outparcel and pad site usually mean the same thing. Inline space is a unit in the attached row of stores.
- Three deal forms. Ground lease, building lease or fee sale.
- The REA sets the rules. It governs access, parking, visibility and exclusive uses.
- California wants a legal parcel. A pad sold as its own parcel often needs a recorded parcel map; for leases it depends on the facts.
- Value follows the lease. Income, tenant credit and remaining term drive price.
Outparcel vs. Pad Site vs. Inline Space: What’s the Difference?
An outparcel and a pad site are, in everyday use, the same freestanding site on the edge of a center. Inline space is a unit inside the center’s attached row of stores.
So what is a pad site? ICSC materials use the terms interchangeably, describing “a particular outparcel (maybe a restaurant pad).” “Pad” is also used more loosely for any building site in a center, including large parcels that anchors such as department stores own.
| Feature | Outparcel / pad site | Inline space |
|---|---|---|
| Where it sits | Freestanding, on the periphery of a center, usually in front | In the attached row of stores |
| What the user occupies | Land or a stand-alone building, with its own parking and room for a drive-thru | Space within a shared building |
| Typical users | Restaurants, banks, specialty retailers, gas stations | Stores and service outlets |
| Deal forms | Ground lease, building lease or fee sale | Space lease |
| California Map Act | A separate parcel for sale, lease or financing can be a subdivision | Leasing store space within a commercial building is exempt |
Why Do Quick-Service Restaurants and Banks Want Outparcels?
Users pick a retail pad site for visibility, access and a building of their own. An ICSC paper on outparcel leases lists the main reasons:
- Visibility from the street.
- Customer access and dedicated parking.
- Room for a drive-thru or patio.
- Proprietary branding in the user’s own building.
- Lower rents, since ground rent on an unimproved site tends to run below building rent.
CoStar’s Q3 2026 report names proposed drive-thru pads in a new Inland Empire center, covered below.
Deal structuresHow Is an Outparcel Sold or Leased? Ground Lease vs. Building Lease vs. Fee Sale
A pad changes hands in one of three ways: the user ground-leases the land and builds, leases a finished building, or buys the pad in a fee sale. On a ground lease, one of several types of commercial leases, the landlord’s job is often limited to grading the site and bringing utilities to the perimeter. A construction allowance, if the tenant gets one, is effectively a loan the landlord recovers in rent.
| Ground lease | Building lease | Fee sale | |
|---|---|---|---|
| Land owner | Landlord (the leased fee) | Landlord | Buyer |
| Who builds | Tenant, usually | Landlord delivers the building | Buyer, or buys an existing building |
| Relative cost | Ground rent, which tends to be lower | Building rent, almost certainly higher | Purchase price |
| End of term | Improvements pass to the leased-fee owner unless the lease requires demolition | Landlord keeps the building | No term |
In California, Civil Code § 718 makes invalid a lease of a town or city lot that reserves rent and runs more than 99 years. Under Revenue and Taxation Code § 61(c), creating a leasehold of 35 years or more, counting renewal options, is a change in ownership of the leased portion. For fee buyers, IRS Publication 946 says land cannot be depreciated.
The REAWhat Is a Reciprocal Easement Agreement, and Why Does It Matter for a Pad?
A reciprocal easement agreement (REA) is the governing agreement among owners of parcels in one development. It grants shared easements and sets rules for construction, maintenance, signage and uses. For a pad, it decides access, parking and what may be built in front of you.
ICSC’s introduction to shopping center REAs notes they also go by OEA, ECR (Easements, Covenants and Restrictions) and COREA. An REA for a single outparcel may include only the master developer and the outparcel owner, and it often gives the developer significant governing control.
California law makes it stick. Civil Code § 803 calls the land an easement is attached to the “dominant tenement” and the burdened land the “servient tenement.” Under § 1468, a covenant between landowners binds each successive owner when the statute’s requirements are met, including that both parcels are particularly described. That is how recorded REA and CC&R restrictions can bind every later owner of a pad.
Negotiation checklistWhat Should an Outparcel Buyer or Tenant Negotiate?
Negotiate visibility, access, parking, exclusive use and your share of common-area costs, and put them in both the lease and the REA.
- Common-area costs. Pad tenants resist paying for an adjacent mall’s interior common areas and often limit their share to access drives, pylons, lighting and landscaping. Compare typical CAM charges.
- Visibility. Pad leases often require the landlord to keep a clear view from named streets through a “no-build area” or height limits. Changes to protected accessways can require the outparcel owner’s consent.
- Exclusive use. Restaurants often seek protection against competing uses. Developers try to negotiate “use it or lose it”: if the user closes, apart from certain temporary closures, or changes its use, the protection ends.
- Parking. An ICSC conference paper calls parking the “holy grail” of REA talks. Owners usually require each tract to be self-parked.
- End of term. Some landlords require a heavily branded building to be demolished and the site regraded.
Work these alongside title, survey and zoning in our commercial real estate due diligence checklist.
California mechanicsHow Is an Outparcel Created in California?
Dividing a center’s land to sell, lease or finance a pad can be a “subdivision” under the Subdivision Map Act, so a pad sold as its own parcel often needs a recorded parcel map. Contracts can be signed earlier if expressly conditioned on the map.
Government Code § 66424 covers divisions “for the purpose of sale, lease, or financing, whether immediate or future.” Section 66412(a) exempts leasing store space within commercial buildings, which covers inline space. Whether a pad ground lease or loan needs a map depends on the facts and on other statutory exemptions, so confirm with the city and a land-use attorney.
- Which map. Five or more parcels need a tentative and final map, but commercially or industrially zoned land with approved public-street access and street alignments can use a parcel map.
- Smaller splits. A parcel map is required unless local ordinance waives it.
- Timing. No sale, lease or financing until a required parcel map is recorded; a contract expressly conditioned on the map is allowed.
- Parcel check. Confirm whether the pad has its own assessor’s parcel number (APN). The Riverside County Assessor keeps more than 21,000 maps delineating every parcel in the county.
How Are Outparcels Valued?
A leased outparcel is priced on its income and the risk of that income. CoStar defines a cap rate as “first-year net income divided by the purchase price.” On a ground-leased pad, the owner holds the leased fee: ground rent plus eventual ownership of the improvements.
Hypothetical example
A pad earns a hypothetical $120,000 a year in net ground rent. At a hypothetical 5.0% cap rate, it is worth $120,000 ÷ 0.050 = $2,400,000. At a hypothetical 5.5%, the same rent supports about $2,181,800. These rates are illustrations, not market quotes.
Nationally, CoStar’s Single-Tenant Net Lease Retail National Report (Q1 2026 national edition) puts quick-service restaurants at the tightest end of net-lease pricing, generally above the mid-5% range. Its sector medians exclude ground leases.
Run the math with how to calculate cap rate, compare NNN investment structures, or order a commercial property valuation.
Local marketOutparcels in the Inland Empire and Coachella Valley
Pads are still being built into new Inland Empire centers, and CoStar’s general retail category, which includes many freestanding buildings, is tighter than the market overall.
Apex’s analysis of CoStar data (Q3 2026)
- General retail: 3.7% vacancy, versus 6.0% for the Inland Empire retail market. CoStar notes many general retail properties are freestanding buildings.
- New pads: one pad remains available at The Vinyard in Murrieta, and across I-215, The Orchard Center is under construction with two proposed drive-thru pads.
- Highland: Greenspot Crossings has preleased pads to Starbucks, Chipotle and other restaurant brands.
- Coachella Valley: Showcase at Indio includes multiple new pad sites with I-10 freeway visibility.
Source: CoStar. General retail is a CoStar property category, not a count of outparcels.
Pricing follows the lease: CoStar reported a Dutch Bros pad in La Quinta selling at a 4.7% cap rate in June 2026. See our Inland Empire retail market report for more sales, and our land report on retail pads and other development land.
Common questionsOutparcels: Frequently Asked Questions
What is an outparcel in commercial real estate?
An outparcel is a freestanding parcel or building site on the edge of a shopping center, usually in front near the street, occupied by a single user such as a quick-service restaurant, bank or specialty retailer.
Is an outparcel the same as a pad site?
Usually, yes. Industry materials use the two terms interchangeably. Pad is sometimes used more broadly for any building site in a center, including the large parcels anchors own.
Are outparcels sold or ground leased?
Both. A user can ground lease the land and build, lease a finished building from the landlord, or buy the pad in a fee sale. Ground rents tend to be lower than building rents.
Who owns the building on a ground-leased outparcel?
The tenant typically builds and operates it. The landlord holds the leased fee, including eventual ownership of the improvements when the lease ends, unless the lease requires demolition.
How long can an outparcel ground lease run in California?
Civil Code section 718 makes invalid a lease of a town or city lot that reserves rent and runs more than 99 years. A lease of 35 years or more, counting renewal options, is also a property-tax change in ownership of the leased portion.
Do outparcel tenants pay CAM charges?
Usually, but the share is negotiated. Pad tenants often limit it to access drives, entrances and exits, shared sign pylons, common lighting and sometimes landscaping.
Do you need a parcel map to sell or lease an outparcel in California?
Often, to sell a pad as its own parcel. A parcel that needs a parcel map may not be sold, leased or financed until the map is recorded, though contracts expressly conditioned on the map are allowed. Some leases are exempt, so confirm with the city or county and a land-use attorney.
Weighing a Pad Sale or a Ground Lease?
Robert Mendieta Jr., CCIM, helps center owners compare a pad sale with a ground lease, and helps buyers underwrite single-tenant pads. Owners can also ask about landlord representation.
Call Robert: (951) 977-3251Or call Joseph Lombera, Commercial Agent + CMO · DRE #01971957: (909) 406-6538
Or request a free CRE consult below.
Sources (accessed October 6, 2026): ICSC · Outparcel Leases / Pads · April 30, 2018. ICSC · Canadian Retail Real Estate Standard · December 2010. ICSC · U.S. Shopping-Center Classification and Characteristics · January 2017. ICSC · The ABCs of REAs · October 24, 2018. California Legislative Information · Gov. Code §§ 66412, 66424, 66426, 66428, 66499.30; Civ. Code §§ 718, 803, 1468; Rev. & Tax. Code § 61 · current text. IRS · Publication 946 · 2025. Riverside County Assessor · Assessor Maps · current page. CoStar · Inland Empire Retail Market and Coachella Valley Retail Submarket reports, Q3 2026; Single-Tenant Net Lease Retail National Report, Q1 2026 (licensed data).
Robert Mendieta Jr., CCIM · Associate Broker · Commercial Division · DRE #01422904 · Joseph Lombera · Commercial Agent + CMO · DRE #01971957 · Apex Real Estate Services · 3750 E. Florida Ave Suite A, Hemet, CA 92544 · (951) 977-3251 · robert@apex-res.com