Emerging Concepts

How Restaurants Are Navigating the Current Real Estate Market

Restaurants looking to expand are facing some significant roadblocks as the end of 2023 approaches. The demand is high, and the “right” inventory is challenging to find and quickly scooped up as soon as it hits the market. For those looking in the hot markets, the shortage intensifies. 

Add construction delays and supply shortages, and it’s apparent that the changes taking place in the industry may be the new normal. Let’s explore how restaurants are managing this new landscape and the markets that are becoming the “hot ticket.” 

The Increasing Demand for Restaurant Real Estate

Nation’s Restaurant News recently reported on several brands that are giving themselves a building timeline cushion. These include Portillo’s and Cava, who use these buffers to insulate themselves from the delays caused by slow permitting and lack of availability.

Others are pushing back openings to 2024, working with developers, and looking at smaller footprints. Conversions are also gaining traction, enabling restaurants to complete construction quicker and often with reduced costs, at least 20% lower than new builds. Jon Howie, CFO of Chuy’s, believes that construction costs are 40% higher than they were before the pandemic. In response, they are opting to buy, instead of leasing, some of the properties slated for new units.

Forecasted Supply Chain Hurdles in 2024

Many restaurants are looking to 2024 in hopes that some of the constraints will ease. According to AvidXchange, material costs show some signs of stabilizing in the new year. However, while improving, the delays in the transportation of materials and production are still far removed from normalizing. KPMG reports that 71% of companies worldwide say raw material costs are their number one supply chain threat. 

The Hot Markets

The shift in consumer preferences and behavior has significantly affected the “hot markets” and restaurant operators’ responses. Placer.ai reports that Scottsdale is one of the most in-demand markets and has experienced a massive population influx. Texas and Florida are two states that also continue to see an increase.

Some of the top markets in these states are no surprise and include Dallas-Fort Worth, Houston, Austin, San Antonio, Phoenix, Mesa, and Tampa. 

Suburbs and rural communities have also shifted the demand, becoming the go-to spot as the hybrid workforce continues to dominate. Food Institute reports that Chipotle is looking at markets with populations less than 100,000 and experiencing success in these areas, with more visits per location and less competition.   

Lifestyle Centers

And, of course, we would be remiss not to mention the continuing changes in America’s malls. Now called lifestyle centers, these mixed-use spaces are anchored by tenants like restaurants—brands that offer an experience. These centers usually contain or are next to residential properties, creating an in-demand environment that lets people work and play within walking distance. 

Often laid out like urban promenades, they offer a beautiful environment where people stroll among the trees, landscape, and lighting while shopping, dining, and enjoying entertainment. In addition to restaurants, these spaces often contain upscale, dine-in theaters like Silverspot Cinema, spas, and the growing social entertainment concepts such as Puttshack and Chicken N Pickle. 

The end of 2023 sees two possible mixed-use projects replacing underused Santa Ana shopping malls. According to the L.A. Times, the adjacent mixed-use developments, Village Santa Ana and Related Bristol, include over 5,330 housing units, 16 acres of open space, and about the same amount of office and commercial space.

The Right Site Selection

After you’ve determined your next location, one of the most important strategies that helps diminish wait times is site selection. This ensures the building is up to code, a prime reason for permitting delays. And that’s where Emerging Concepts comes in. As an extension of the operator’s team, we evaluate real estate opportunities across the country. 

Using data science and predictive analytics, we help brands successfully scale their enterprise, negotiating with landlords and developers to effectively maximize returns. A few of our many clients include Silverspot Cinema, Puttshack, JF Restaurants, and Rooftop Cinema Club. Contact EMERGING today to learn more about working with our team or schedule a consultation.

FAQS

What’s the hottest real estate market in the U.S.?

According to the U.S. News Housing Market Index, the hottest real estate markets include Florida, Texas, North Carolina, and Colorado. The most desirable metropolitan statistical areas (MSAs) within these states are Denver, Durham-Chapel Hill, Raleigh, Charlotte, and Cape Coral-Fort Meyers.

How can I expand my independent restaurant?

There are several ways to expand your brand, including adding locations. If your current location and concept demonstrate significant demand, you’ve optimized cash flow, and you have access to reliable funding, now may be the time to consider another unit. You can also expand your brand by developing additional revenue streams, such as launching a pop-up, creating a virtual brand, branded merchandise, or catering. 

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Emerging Concepts
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