2024 was a year of innovation and creativity for the restaurant industry.
As the F&B sector continues to evolve and grow, the restaurant real estate market follows along to accommodate to new consumer behaviours, technological advancements, and economic conditions while using this as an opportunity to increase pricing and acquiring high potential commercial space to lease out.
In 2025, restaurant owners and restaurant operators will need to continue to balance affordability and location strategies due to the ever-evolving real estate landscape and dynamic economy.
Restaurant businesses are moving away from the traditional 80 - 100 square foot space, and are looking at what's available in the market to expand in a more natural and free form manner.
Whether you're expanding, relocating, or renegotiating a lease, staying ahead of these trends will be crucial for favorable lease terms and long-term success.
Overview:
Landlords are increasingly offering flexible lease structures, including revenue-based rent models, to attract and retain tenants in a constantly fluctuating market.
There are four main types of restaurant leases (last two having more flexible leasing terms):
Tenants are to pay a flat monthly fee with maintenance costs, operational expenses, and utilities built into the rent costs.
Pros:
Cons:
Things to Note:
Tenants are to pay a lower flat monthly fee + partial operational costs.
Costs can include maintenance, utilities, property taxes, and insurance.
There are three types of leases:
1. Single Net Lease (N Lease)
Rent + Property Taxes
2. Double Net Lease (NN Lease)
Rent + Property Taxes + Insurance
Most common for leases inside shopping malls, office buildings, and warehouse spaces.
3. Triple Net Lease (NNN Lease)
Rent + Property Taxes + Insurance + Maintenance
Most common for freestanding retail spaces and single tenant properties.
Pros:
Cons:
Things to Note: During the lease negotiation process, it's important to discuss exact financial responsibilities for the partial operational costs so you don't get stuck with unexpected costs after signing your lease agreement.
Tenants are to pay a flat monthly fee + percentage of business profits
It's common for landlords to allow small businesses to only pay the flat monthly fee until they reach a certain profit level, garnering trust and building a long term relationship between the lessor and lessee.
Pros:
Cons:
Things to Note: If your business is already established with constant high net profits, giving a percentage of business profits will usually make the cost of rent higher than neccessary.
Tenants are to pay a lease that changes throughout the lease duration due to various circumstances.
These types of lease terms are determined during lease negotiations between the lessor and lessee.
These are the most flexible type of leases, but also leaves high risk for the tenant.
Two main types of variable leases:
1. Index Lease
An index lease is where the flat rent is tied to an index.
The most common index is the Consumer Price Index.
2. Graduated Lease
A graduated lease is when there is a set increase percentage of the flat rent.
For example, a yearly 3% increase in the base rent.
*The rate of each change / increase depends on the negotiations between the tenant and landlord.
Pros:
Cons:
Things to Note: The terms of variable leases are quite flexible so the lease negotiation process is crucial to obtaining favorable lease terms that make both parties content.
Make sure to do thorough research on:
1. The index of choice and its volatility history
2. Market trends and projections for potential costs
3. Negotiation caps and max rent increase (to mitigate high risk)
As consumer dining habits shift and operational costs rise, many restaurant businesses are moving towards smaller, more efficient dining spaces to maximize revenue and minimize overhead costs.
This broader trend is largely driven by consumer's growing preference for fast on the go options takeout, delivery, and digital ordering, reducing the need for large dining areas.
Restaurant market trends are now shifting to more fast casual options prioritizing high-turnover, takeout-friendly layouts over large dining areas.
1. Lower base rent and operating costs
2. Adapting to modern consumer behaviors
3. Dining space integrated into mixed use spaces
1. Flexible seating options and accessible work stations
2. Compact & high efficiency kitchens
3. Optimized for delivery options
4. Smart inventory management system
Having smaller, more compact dining and kitchen spaces with a streamlined business model allows for scalability and increased accessibility to prime or rare real estate in competitive markets.
As remote work continuously gains popularity, the demand for restaurant space in suburban areas and mixed-use developments continues to rise.
Consumer trends are paving the way towards more unconventional places of dining and purchasing, making second generation spaces a perfect space to easily convert to a dining area in an affordable manner.
Nowadays, any space can be transformed into a food hub.
There is no longer a designation as to what is the perfect restaurant space.
Whether it's large or small, private or shared, or an indoor or outdoor space, any space is now able to be designated the perfect space for dining.
Due to the rise in food delivery, ghost kitchens are becoming more prevalent, both with restaurant models with a brick and mortar shop, as well as business models that are solely an online presence with delivery options.
Ghost kitchens, sometimes referred to as "cloud kitchens" or "virtual kitchens," operate without a traditional front-of-house service area, allowing them to significantly reduce overhead costs.
This model enables operators to focus solely on food production, often catering to multiple brands from a single location, expanding reach and visibility.
1. Highly Cost-Efficient
One of the primary appeals of ghost kitchens is the drastic reduction in monthly rent.
Since there is no need for a customer dining space, businesses can set up in lower-rent areas while servicing high-demand urban regions through efficient delivery business models.
2. Easily Scalable
With ghost kitchens, brands can quickly scale operations without the lengthy, costly, and complex process of opening a full-service location.
Successful concepts can easily expand into other markets by setting up additional ghost kitchen locations, allowing them to quickly react to demand spikes and market fluctuations.
3. Adaptable Location
Without the need for high-visibility storefronts, ghost kitchens can operate in less expensive, non-prime locations, such as industrial areas or shared kitchen spaces.
Since they cater primarily to delivery, ghost kitchens can be placed strategically near high-density residential areas or business districts to reduce delivery times and maximize customer reach.
4. Increased Flexibility
Ghost kitchens provide an unparalleled degree of flexibility.
Ghost kitchen operators can quickly enter new markets by leasing or renting kitchen spaces in different locations, testing demand without committing to long-term leases.
Brands can also easily pivot their menu items or expand on cuisine types based on customer feedback without the constraints of a traditional dine-in setup.
5. Menu Innovation
The flexibility inherent to ghost kitchens encourages experimentation.
Brands can test new menu items without the risks associated with sit-down service, such as changing décor or staff deployment as they adjust their operations to customer preferences.
With no dine-in constraints, these kitchens can pivot quickly to meet changing food trends, partner with different brands, or adjust menus based on their customer base and local preferences.
Sustainability, in the recent years, has been a growing concern in the restaurant industry.
The levels of food waste, as well as energy consumption has gone to an all time high, and both business owners and real estate agents are now focusing to accommodate more eco friendly practices and leasing opportunities.
In addition to supporting the environment, sustainability-focused leasing benefits both landlords and tenants by reducing costs, meeting regulatory requirements, and appealing to environmentally conscious consumers.
Other efforts include prioritizing energy-efficient buildings, renewable energy integration, waste reduction initiatives, water conservation measures, and sustainable practices in lease agreements.
Technology has transformed all aspects of life, including restaurants operations and leasing trends and tech-integrated spaces are no longer a luxury. They are a necessity for restaurant operators looking to stay competitive in today's digital world.
As digital solutions become essential for efficiency, customer experience, and cost control, landlords and restaurant operators are prioritizing tech-integrated spaces in 2025
Restaurants leases that accommodate advanced technology, such as self-service kiosks, AI-powered order management, and seamless third-party delivery integrations are now deemed much more desirable to any success restaurant business.
MenuSifu's entire business line prioritizes smart tech to power restaurant operations and management.
MenuSifu's POS system utilizes smart software such as cloud systems, integrated inventory management, and comprehensive customer and employee management.
MenuSifu's E-Menu replaces the traditional paper menu with a smart and efficient online ordering experience by using a visually appealing and user friendly interface, and an instant and accurate operational management system.
MenuSifu's Scan to Order system allows customers to scan a QR code to easily grow your restaurant business's digital presence with efficiency.
MenuSifu's Central is a smart delivery integration software that enables one stop seamless order management and delivery services for your food business.
The restaurant industry is seeing a growing shift toward short-term leases and pop-up restaurant concepts, offering both landlords and tenants more flexibility in a fast-changing market.
These leasing opportunities allow business owners flexibility before committing to long-term agreements, as well as chefs who are wanting to set up a small test run establishment, a taste of what owning a restaurant is like.
As consumer preferences evolve and economic conditions fluctuate, these adaptable leasing models allow restaurant owners to test new ideas, expand their reach, and optimize costs.
These leasing options enable the conversion of second generation spaces into these short term or pop up rental spaces, allowing for quick turnover between business, cutting costs and operating expenses.
Competition has always been tight for prime dining locations with high rates of foot traffic.
Before, it was the bigger stand alone brick and mortar storefronts with a large dining area that was the most in demand, but as consumer spending on dining rebounds, the prime real estate has moved towards small storefronts in high foot traffic areas, such as urban centers and entertainment districts.
With this in mind, operators must act strategically to secure desirable locations.
Whether through early negotiations, leveraging data insights, or seeking creative leasing options, staying ahead of the competition will be key to a successful restaurant business in 2025.
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