Industry News

How the pandemic is reshaping restaurant real estate

It's no secret by now that the pandemic has fueled major shifts in the way restaurants are operating, affecting everything from where and how consumers dine to whether restaurants can source the ingredients they need to prepare the food and find the employees they need to serve it. 

Nowhere have the effects of these strange times been more apparent than in the decisions operators have had to make about keeping their doors open. 

Stories of restaurants around the country struggling and closing either temporarily or permanently have abounded since the start of the pandemic. More than 110,000 restaurants and bars closed their doors last year, according to the National Restaurant Association.

But the closures may also be creating opportunities for chefs and restaurateurs to launch new formats or expand successful concepts in spaces that need very little in the way of renovations to get up and running.

There’s anecdotal evidence in some markets that the trends are spurring landlords to become more flexible on rent and lease terms. 

But in other places, from San Mateo, Calif., to North Plainfield, N.J., interest from investors eager to enter the market, restaurant operators looking to grow and chefs ready to open their first eateries is keeping demand strong and giving landlords leverage.

That seems to be the case in Colorado as well, says Dave Query, whose Big Red F Restaurant Group is in the process of opening its 15th and 16th locations. 

“I think everyone thought there was going to be a huge inventory of restaurant spaces and that property values were going to plummet, but it’s almost the opposite,” Query says. “When a space goes vacant, it’s rented pretty quickly, especially in the Colorado market.”

The situation is creating new opportunities, he says.

“There are a lot of chefs and restaurant people who are finally striking out on their own.”

Query’s company, whose banners include Jax Fish House and The Post Chicken & Beer, launched in 1994 with the opening of Zolo, one of two eateries the company decided to close over the past year.

Zolo’s relatively high rent led Query to give up that space, but he made a different decision with the second spot that closed, Lola Coastal Mexican in Denver.  Lola ended its run this month and the space will be turned into a new location for the popular hot chicken and cold beer concept The Post Chicken & Beer. 

The pandemic affected just about every aspect of the company’s operations, Query says, including fueling the popularity of chicken and beer, but the decision to close Lola after about two decades had more to do with longer-term changes. 

“Lola was 20 years old and there’s a moment in any business’s life, especially a restaurant, where you contemplate continuing to plow ahead or decide to make a change,” Query says. 

When Lola opened in Denver there was just one bar in the neighborhood and today there are several spots vying for customers. Both Lola and Zolo were concepts that had run their courses, Query says. 

Changing times and new opportunities likely drove other restaurant closures in the Colorado market over the past year as well, though the state has seen fewer closures and more openings than some other markets, says Denver-based restaurant consultant John Imbergamo.

“Although we’ve lost lots of restaurants, including some iconic spots like Racines, Vesta, Beast & Bottle, Euclid Hall and Falling Rock, many cite real estate issues and too-good-to-pass-up sale opportunities for their demise,” Imbergamo says.

Data compiled monthly by Westword attests to those trends. The metro Denver market grew by 22 new eateries last month, Westword reported, while only four places closed. July saw 33 openings and three closings, while 30 opened and six closed the previous month.

Living the dream

When Query was a senior in high school, his psychology teacher had the class write letters to their future selves that the teacher would mail to the students a decade later. 

Query’s missive, which showed up when he was a 28-year-old married father of two, outlined his younger self’s ambitions to attend the Culinary Institute of America, meet a like-minded woman and travel the world for a while before settling down back in Boulder, Colo., and starting restaurants.

All of that had happened by the time the letter arrived.

But not all of it came easily. There were struggles and lessons learned, and the pandemic has brought new challenges that have led to a sense of exhaustion for many in the industry, Query says.

“Everybody in the business has had to really look at everything and sort of pick and choose what’s important and what’s not. What’s fundamental to your business and what’s not.”

Patrons who used to come into the company’s restaurants primed for a good time now bring anger and frustration instead, he says, and that can wear on everyone involved in a business whose mission is to make people happy. 

“The entire world is tired of wearing a mask and being in a pandemic,” he says. 

Still, the company’s 800 employees have remained in their posts, with only one leaving because of the return of masks. And the changes haven’t dampened the company’s expansion plans.

The future of restaurant real estate

One of the talking points amid the pandemic is that restaurants that close are leaving behind spaces that can be retrofitted for new concepts quickly, easily and inexpensively. That may be true in some cases, but definitely not always, Query says.

“Everybody thinks taking a second generation restaurant makes it easier,” he says. “There have been times when we’ve taken a second-gen location and done quite well with the remodel.”

That said, restaurants that have been up and running for a couple decades leave behind spaces that can easily prove costly and time-consuming to renovate and bring up to modern standards.

“If you take a space that’s been there for 25 years or so, it won’t be code compliant. All of a sudden what you thought was going to be a no-brainer ends up being twice as expensive.” 

Query learned those lessons early on at his company, which has often opted to open new eateries in iconic buildings. 

“We’ve learned and started to do a deeper dive into what we’re getting when we go into an existing location,” he says. 

For Query and others across the industry, the pandemic has brought other factors into play when they seek out new spaces. The shifts in demand from indoor to outdoor dining, takeout and delivery means giant marquee spaces could become a thing of the past, he says. 

“These days a big grand dining room could be a tough road going forward,” he says. 

“I don’t think the desire to eat out is going to change, but it will be more of a combination of eat out/eat in, with a big emphasis on to-go and delivery. A lot of folks are real hesitant right now to hunker down in a restaurant.” 

And big restaurant spaces left empty could ultimately be turned into something else.

“There are definitely some really killer spaces available right now,” Query says. “When I say it’s surprising there’s not more space available right now -- there are spaces, but the problem is the rents have been so high and landlords don’t want to take a step backwards.”

That means some will likely opt to repurpose spaces for other uses such as retail and residential, he says. 

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