What is the current state of restaurant real estate, and what should restaurateurs consider when looking for locations this year?
We are experiencing enormous tectonic shifts in real estate right now with a number of contributing factors. During the recession, and for a few years after, retail/restaurant tenant space development effectively stopped until the existing supply was leased up. Now, we’re seeing development come back aggressively, but demand is outpacing the limited supply as competition for first-generation traditional restaurant spaces has become very high. This aggressive development cycle means that supply is just now catching up with demand and it will have positive impacts on the industry.
Another factor causing this shift is the enormous change in U.S. demographics and buying power. In 2020, Millennials will hold more than 50 percent of U.S. consumer buying power. In 2025, they will hold more than 75 percent. Their living preferences are very different from older generations, as they are much more urban- and semi-urban focused. They are also currently more focused on renting than owning single-family homes. Because of this, the fastest-growing cities right now are second-tier in size. Those cities are appealing to Millennials because they focused on growing their urban and semi-urban core areas, and offer more affordable living alternatives. (Click here for the 11 top cities Millennials are moving to.)
Given all of these changes, my top three considerations for restaurateurs are:
In general, there is more competition for customers, customer dollars and real estate. So, do your homework and invest in your homework and build it into your pro forma. Not every deal is going to work out, but knowing your deal and the costs associated with it will save a lot of time and money in the long run.
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