Restaurant RE Trends for Mid-Year 2024

To get more insights on the current status of the restaurant real estate market, Modern Restaurant Management (MRM) magazine reached out to  Satya Guduru, CEO at Janapriya Upscale USA.  

What kind of properties are currently in demand and what trends are you seeing? What markets are doing well and why and what ones are not doing so well? 

Cost conscious consumers are looking for budget-friendly options. With that in mind, fast casual dining is trending in the restaurant industry in terms of demand for retail spaces.  

Sun Belt markets where there is still a net growth in population are doing well. So, the usual suspects of Texas, Florida and Arizona. Places like New York, San Francisco and Chicago are not doing so well with retail taking a beating due to security/theft-related issues.  

In what ways did the pandemic change the restaurant real estate market? 

The pandemic forced restaurants to rethink their spaces to be able to add more speed to their response times, more open areas for dining and finally offering drive through windows or pickup options. All in all, more outdoor spaces in terms of temp parking, pickup spots, and patio spaces. All of this would lead to less indoor leased space. Demand has also increased for spaces with electric charging stations in their parking lots.  

Why should restaurant investors be interested in the smaller markets? 

Most of the bigger markets have higher land costs for developers. The higher land costs combined with higher construction costs have led to huge upfront capital requirements. This means there are longer periods to break even for restaurant investors, whereas smaller markets still have reasonable land rates and relatively lower construction costs. This leads to a better and quicker ROI for restaurant investors.  

How do high-profile restaurant closures affect the restaurant real estate landscape and the real estate market in general? 

High-profile restaurant closures impact the restaurant real estate landscape and the broader real estate market in several ways. With more closures, prime commercial spaces become vacant and there is an opportunity for a new mix of tenants. Remaining tenants may secure better lease terms due to the higher vacancy rates. Also, the property values might decrease without the draw of high-profile restaurants. 

For the broader real estate market, higher vacancies can signal overall economic downturns. Restaurant closures affect neighborhood dynamics and reduce foot traffic and attractiveness in areas losing notable restaurants. For investors, there is more perceived risk in those areas, potentially leading to shifts in investment patterns. In turn, these vacant spaces might be repurposed for offices, residential spaces, or mixed-use developments which change the local land use patterns.  

What is making restaurant tenants a better bet now?  

We are seeing widespread recovery from the impacts of the pandemic, with restaurants thriving now more than ever. There is a high demand for dining experiences and consumers are now putting more of their budget towards eating out. With new diverse cuisine options and concepts, there is ongoing consumer spending and interest in trying new restaurants. Also, supportive local government policies that encourage new restaurant openings and want to keep them open are helping restaurants flourish.