May 18, 2017
By Cooper Smith, leasing and brokerage associate
When searching for a restaurant space to lease there are a few important things to keep in mind. The first is decide whether to lease or buy the space. Purchasing a building is a long-term commitment that is often reserved by restaurant owners with experience in the restaurant world or who have partners with a significant amount of capital.
Leasing is the most popular decision for restaurant owners. In many cases, new restaurants begin with a lease that can eventually lead to full or partial ownership of the property once a certain amount of rent has been paid and gross revenue is established. Two key advantages of leasing a space include:
- Availability of Capital: Since leasing a space includes less upfront costs, restaurants often have additional capital that can be allocated to other expenses. A restaurant will need more than just a catchy sign or a well-designed menu to bring in customers. Money saved by leasing can be spent on marketing efforts, kitchen appliances, dining area appeal, or specialty chefs.
- Freedom to expand: Successful restaurants will eventually acquire more customers and employees, which in turn creates a need for a larger space. Many leases include a “Right to Expand” clause that allows the lessee to take up more square feet on the landlord’s property. Determine the maximum number of square feet you would need at the location and check to see if the lease and property you are considering can accommodate that growth.
When evaluating different lease options, restaurant owners should look for certain qualifications for their next space. Below are a few of the specifications to keep in mind:
- Location: A restaurant can only thrive if people know about it. Try looking for a space in a high-traffic, popular area that has a good flow of both foot and car traffic.
- Community growth: Stability is key when it comes to searching for the perfect spot to open a restaurant. Be sure to consider the economic growth within the area, along with future construction plans, business regulations and overall financial stability of the potential customers in the area you plan on leasing space.
- Past inspections and residents: Before committing, be sure to do research into the history of the property. If the previous tenant was also a restaurant, owners may not need to invest as much into new appliances, but rather invest in maintenance. By looking through a unit’s past inspections, owners can learn how much is needed to update the space per city requirements.
- Terms of the lease: Although restaurant owners may not enter a lease with intentions of breaking the lease clause, it’s smart to be prepared in case any unexpected situations occur. Owners should be thorough and tentative about any clauses associated with the breaking of a lease. Most restaurant leases are a Triple Net (NNN) lease where the tenant helps the landlord pay for taxes and insurance along with monthly rent. Depending on the market and sales volume, some landlords have a percentage rent clause in the lease, which states that if the tenant achieves a certain amount of gross sales in a year, the tenant will pay a percentage of such gross sales to the landlord as additional rent.
- Parking: When considering a space, be sure to look at parking accessibility for your restaurant. If parking is inconvenient or has minimal capacity, potential customers may be deterred. Another option is hiring a valet with curbside service.
Once a space is secured, it’s time for any conversions or renovations. Converting an ordinary space into a successful restaurant can be a complicated and expensive process. Below are some of the important items to consider:
- Space Planning and layout: An extensive number of tables can bring in more customers and revenue, but servers and customers alike need to be able to move about with ease. Be sure to design a dining room layout that is both comfortable and efficient. This is vital to a successful restaurant and working with an interior design professional is always very helpful.
- Know the potential customers: What kind of customers will the restaurant attract? Will it be family friendly or serve a more upscale customer base? Consider the crowd and implement designs and themes that appeal to the demographics in the area. Customers in recent years have become more adaptive to busy restaurants and newer restaurants have cut back on the amount of space leased to gain the perception of a busy and popular restaurant.
- Be code compliant: Before opening its doors, every restaurant owner should make sure he or she is in compliance with all FDA restaurant codes and regulations. These can differ by state, so make sure to do the research.
Choosing a space to start your restaurant is an exciting process. At J.H. Berry & Gilbert, we are ready and available to help guide you through the process and will help you set your restaurant up for future success.