Real estate availability presents expansion opportunities for 2022
The widespread restaurant and retail store closures of the past year have opened up new opportunities for restaurant operators seeking to expand their concepts, and that means a shift in growth patterns is expected in 2022.
Several expansion-minded operators said they have noticed a sharp increase in available sites to choose from. Many are counting on ongoing consumer demand for off-premise dining, and are seeking larger sites that can accommodate drive-thrus. And many are also focusing on suburban locations as the future of urban office occupancy remains uncertain.
“There are all different kinds of retail that just haven’t been doing well, and landlords are looking at ways to repurpose their property,” said Danielle Brunelli, president and principal at real estate firm R.J. Brunelli, which is working with Raising Cane’s to secure that chain’s first locations in the New York-New Jersey area. “There are definitely some new opportunities that are becoming available because of the pandemic.”
Mike Parkhill, senior vice president and director of real estate at sandwich chain Jersey Mike’s, agreed that opportunities for new sites have increased significantly, and landlords have been eager to attract viable tenants. While rent prices have remained stable, many landlords have been offering more tenant improvement, or TI, funding that can reduce costs for operators expanding into new spaces.
“Some people were saying that rent was going to drop 20% or 30%, but quality real estate is quality real estate, in good times and bad,” he said. “Even when the economy’s down, you don’t see major drops in rent.”
Jersey Mike’s is being presented with nearly twice as many available properties nationwide as it normally is, he said, and opportunities are expected to remain elevated, at least in the near term.
Seeking larger sites
More and more restaurants are seeking sites that can accommodate drive-thrus and double-drive-thrus.
“Probably our biggest issue is finding the largest properties that will be able to hold a 3,500-square-foot building with a double drive-thru,” said Brunelli.
She said that in New Jersey, some casual-dining chains have been struggling since even before the pandemic as consumers gravitated to more fast-casual options, which has opened up some opportunities for larger sites.
Ellen’s, a two-unit operator in Dallas, is barreling full speed ahead into the post-pandemic real estate free-for-all. It has secured seven more locations of the diner-style restaurant, which offers an all-day menu of Southern-influenced breakfast, lunch and dinner options, plus it has found sites for one location each for an Italian fine-dining restaurant, a saloon and country music venue, and a new cantina/beer garden, according to Joe Groves, president and CEO.
“Probably our biggest issue is finding the largest properties that will be able to hold a 3,500-square-foot building with a double drive-thru.”
Danielle Brunelli, R.J. Brunelli
“There was a glut of real estate out there, and landlords are eager to get activity in their buildings again,” he said.
All but one of the sites the company has secured was a former restaurant, and all are in the Dallas-Fort Worth area.
Groves, who is one of three equal partners in Ellen’s, said the company has primarily been seeking sites that are about 6,000-square feet in suburban neighborhoods.
Suburban population shift The trend toward remote working and consumer flight from urban areas during the pandemic, which has shifted daytime populations to suburban and rural communities, is also impacting restaurant development, at least in the near term.
“This is something the Blaze team will take into account in terms of site selection,” said Ed Yancey, vice president of franchise development at the Pasadena, Calif.-based Blaze Pizza. “Blaze is primarily focused in growing in suburban, residential areas. Despite many of us working remotely, people still crave to dine out or go out for lunch.”
Parkhill of Jersey Mike’s said the chain remains focused on suburban development opportunities, which have always been its primary target anyway.
“If urban location is presented … We’re not looking at those right now — not until this thing stabilizes and we know if there’s going to be a return to normalcy with regards to the urban markets,” he said.
Brett Schulman, CEO and co-founder of Cava Group, said his company had been eying opportunities in suburban markets since before 2020. In fact, the shift toward suburban living was part of the rationale behind the company’s 2018 acquisition of Zoe’s Kitchen, he said.
Cava recently began converting some of the Zoe’s Kitchen location to the Cava Grill concept.
“As the pandemic accelerated the shift towards suburban life with people moving from major cities at a faster rate than ever before, we were able to accelerate plans to convert Zoes Kitchen locations to continue meeting customers where they are,” said Schulman.
In a recent webinar, Jack Li, founder and CEO of research firm Datassential, said the return of daytime populations to urban office markets could vary significantly by region going forward.
The company’s research shows that 12.6% of all restaurants in the top 20 metro markets were closed as of April of this year, but some specific neighborhoods have seen much larger declines.
One ZIP code in downtown Chicago, for example, has seen 42% of its restaurants close, either permanently or temporarily.
“A lot of it is a super-local story,” said Li. “If you see a lot of skyscrapers, it’s going to be a tougher recovery.”
Brunelli of R.J. Brunelli said she believes office occupancy levels will return, however, bringing daytime traffic with it.
“I think that’s a temporary issue that occurred over the past year or so,” she said. “I don’t think that long-term, that’s going to be such an issue. Obviously restaurants are still going to prefer to locate where there’s daytime population, and even though there might be a slight decrease in daytime population today, it’s not always going to be like that.”
Restaurants that are looking for 15- or 20-year leases need to select sites based on where they think their customer base will be located over the course of that time frame, she said.
“They’re looking at the long term,” she said. “They’re not really making their decisions based on what the office park vacancy is today.”
