Second-generation restaurant spaces are an increasingly popular and appealing option for landlords and tenants alike.
The restaurant business is not for the faint of heart. It’s not exactly a secret that getting a new restaurant up and running is a significant challenge, with a high bar for entry that includes formidable logistical hurdles and financial obstacles. From site selection, to building out a space to a brand or proprietor’s specifications, starting at square one when opening a restaurant means navigating a long and often arduous journey. In a business where the margins are often tight even in the best of times, that steep initial hill to climb can put restaurant owners and operators in a tough spot.
Today, 18 months after the start of the COVID crisis, in an industry forced to overcome the additional stressors and disruption of a global pandemic, that hill can seem even steeper. The good news is that despite the initial setbacks in the early days of COVID, many restaurants have not just survived, but thrived. Restaurateurs have adapted and evolved, making impactful changes that have put them in a strong position going forward. While the dining landscape presents abundant opportunities for entrepreneurs and restaurant brands looking to expand or open a new location, owners and operators are understandably cautious about making a significant new investment. Which is why second-generation restaurant space has emerged as an increasingly popular option. Second-generation restaurant space—particularly locations in lifestyle centers, community centers, and inline retail environments—is proving to be beneficial to landlords, restaurateurs, and customers alike.
What follows is a brief review of why these spaces have become so appealing, what kinds of concepts are moving aggressively to take advantage of them, and how tenants and landlords alike can work together to continue to help second-generation restaurant spaces fill important gaps in an evolving restaurant marketplace.
Translating New Efficiencies
In many respects, the appeal of second-generation spaces to restaurateurs—including the savings of both time and money to get up and running—mirrors the flexibility and newfound efficiencies that so many operators have had to adopt to stay open and competitive in a pandemic environment. From pared down menus to newly efficient takeout and delivery options, to expanded patios and outdoor dining, restaurateurs have made the structural and operational shifts they’ve had to in order to stay open and stay profitable. In that context, avoiding the cost and risk of expensive buildouts in favor of the plug-and-play potential of spaces already designed to prepare and serve food (where something as simple as a hood and ventilation system can save tens of thousands of dollars) is a natural next step.
A Win-Win-Win Scenario
One of the most attractive elements of a second-generation restaurant space is the mutually beneficial dynamic it presents. For creative and capable landlords, it’s a great way to get an attractive paying tenant into a vacant space relatively quickly. The unique appeal of a local or regional restaurant concept is an opportunity to curate a tenant roster that stands out and broadens the appeal of the center. Some landlords have recognized the appeal of new and different dining concepts and begun offering short term leases in an effort to maintain a unique rotation of tenants and concepts. For restaurateurs, the appeal is obvious. The reduced costs, combined with an opportunity to get a foot in the door in a center, neighborhood, or market that might not otherwise have been a good fit for a new build because of cost or timing is an exciting proposition. For diners, having new and different options near the retailers and mixed-use environments they already on and are familiar with is (in some cases quite literally!) icing on the cake.
New Ideas and New Influences
A significant percentage of restaurants moving into second-generation spaces are local or regional players: brands and businesses that are already established in the community and looking to expand. And because they are embedded in the community, they not only have a good sense of market demand dynamics, they understand the pull and potential of a community shopping center destination with a built-in audience. Perhaps because of that local and regional effect, we are seeing more innovative and chef-driven concepts taking advantage of these second-generation opportunities.
For example, Gran Rodeo Mexican Bar & Brill and Great Barn Taphouse are second-generation restaurant spaces at a Poag Shopping Center, The Shops at Valley Square in the northern Philadelphia suburbs. Both establishments, born and bred in the Delaware Valley, have a large, loyal following and cement the center as a regional epicenter for breakfast, lunch, dinner and cocktails.
Another slice of the second-generation pie is going to drinking and dining concepts looking to test the concept or gauge the market. From pop-up coffee shops to farm-to-table dining concepts, innovative new ideas are a natural fit for the relatively inexpensive and buildout-light nature of many second-generation spaces.
As a brainchild of a 12- and 14-year-old in 2017, Sweet & Boozy, an ice cream and sweet treat stop has gotten its feet off the ground in a second-generation space at lifestyle center, LaCenterra at Cinco Ranch in Katy, Texas. As one of two Sweet & Boozy locations in the U.S., the primed space, lease flexibility and eager consumers have allowed them to thrive.
Getting it Right
While second-generation spaces are almost always less expensive than new builds or full renovations, it is still important for restaurateurs to be both savvy and strategic when navigating up-front costs. Look for opportunities to save (e.g. by preserving existing infrastructure), but don’t neglect smart spending when it comes to creating a space that looks, feels, and operates the way you want it to—and creates the ambience and experience that diners increasingly expect. Be selective about who you hire as a contractor to manage the buildout.
Finally, when possible, identify experienced landlord partners with demonstrated expertise in helping restaurant owners and operators move into and take full advantage of second-generation spaces. Ask about flexible lease options, as well as property management strategies (such as a tenant roster design crafted with every daypart in mind) and creative marketing and promotional platforms that a prospective landlord partner can offer to benefit restaurants like yours.