At the time of this writing, retail vacancy rates were forecast to rise to 19.2 percent for the end of 2021, surpassing the previous high of 17.6 percent in 2010, according to Moody’s Analytics. But what sounds like bad news for the state of the industry could actually be good news for restaurant operators looking to negotiate and renegotiate contracts with landlords. Landlords want to keep their good tenants operating, and according to Amy Eskola, a partner with the law firm Messner Reeves who specializes in real estate transactions and contract negotiation, there is a lot of opportunity for operators to secure more beneficial terms right now. During a recent podcast interview with Elliot Maras of Kiosk Marketplace, Eskola said operators are (often successfully) seeking to adjust their contract terms in a wide variety of ways right now, including rent adjustment, abatement or deferment; basing rent on a percentage of sales, and for new locations, negotiating longer buildout periods, arranging to have rent commence at the time of permitting or opening, or securing a lower rent for the first year of operation. Anything is possible if you can present a solid, thoughtful case for it. Before approaching your landlord, conduct some market research so you have a clear sense of what terms similar businesses in your area are getting. If you’re seeking an agreement that hinges on your sales, also ensure you can present clear and organized financial statements that demonstrate your plans to manage expenses and build the business over the long term.
Two years into the pandemic, many people working or investing in the restaurant industry are still (understandably) operating in defense mode – cutting back on expenses, trying to anticipate the next challenge and otherwise playing it safe until somewhat more normal conditions return, whenever that may be. But for others, it is prime time to take risks. For instance, Fortune recently reported that since the start of the pandemic, Mercado Partners' Savory Fund has doubled down on restaurant investments. It raised two separate funds of $100 million each, aggressively invested in seven new restaurant brands and opened 55 new restaurants. On a smaller scale, forward-thinking operators are also finding opportunities for reinvention right now (and at a lower-risk entry point than might exist when the restaurant industry is flying high). QSR Magazine reports that when the restaurant Otto’s Tacos was concerned about having to close, neighboring restaurant Mighty Quinn’s Barbecue, which had a similar inventory, equipment, commitment to quality and footprint in New York City, saw an opportunity to grow both businesses. Otto’s Tacos has survived as a virtual brand run out of Mighty Quinn’s kitchen facility. While the pandemic continues to throw curveballs at restaurant operators, it is also revealing opportunities for positive and profitable change – if you know where to look.
Times of challenge create opportunity – and while the pandemic has presented plenty of hurdles for restaurant operators, it is also revealing new possibilities for those with the resources and flexibility to snap them up. Case in point: A number of large restaurant brands are planning aggressive franchise expansion right now. According to a recent Restaurant Dive report, lower taxes, milder weather and more relaxed Covid restrictions have made the South and Southeast U.S. attractive targets for restaurant expansion lately. Shake Shack, for one, announced that it will be adding up to 50 new locations in 2022 – its largest expansion to date. Even for independents and smaller chain restaurants, there are opportunities. As restaurants have closed during the difficult months of the pandemic, some are leaving behind real estate pre-configured for drive-through business, along with heavy-duty equipment that may be available at a reduced cost. With an excess of restaurant real estate on the market, look for more preferable terms from landlords as well – particularly in higher-end locations that may have been out of reach pre-pandemic. Finally, if you’re open to less conventional arrangements, consider other restaurants or even complementary businesses that may want to join forces via sub-leasing arrangements or other partnerships that can help you both bring business in the door.