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.
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.
If you currently lease your space, you have likely had some interesting conversations – hopefully productive ones – with your landlord in recent weeks. While restaurant operators may be struggling to pay rent, it’s not like there is a long list of businesses waiting to take your place if you were to vacate. Use any good will you have accumulated to negotiate more beneficial terms to your lease. Even the big guys are testing their leverage: Restaurant Business reported recently that Starbucks has asked its landlords for a year’s worth of rent breaks due to the pandemic – and The Cheesecake Factory claimed it wouldn’t be paying rent in April at all. Of course, landlords have their own bills to pay, so if you’re struggling to pay rent, acknowledge your shared challenges. Can you get your rent reduced for a few months initially and then deferred over the course of your lease if you continue to pay taxes, maintenance and utility costs, for example? Can you pay rent on a sliding scale based on your revenue in the coming months – and provide proof of your efforts to keep business flowing? If you are getting support through the Paycheck Protection Program, how can you factor that into your negotiation? Refusing to pay rent likely won’t help your case, but if you can have a discussion about what fixed costs need to be met, you may be able to come to an agreement that’s preferable to the one you started with. What’s more, you may buy yourself a bit more time to adapt your business to current challenges and keep business coming in.