Does a restaurant even exist if it has no place to call home? With ghost kitchens and food trucks on the rise, the answer to that question isn’t as clear cut as you might think. For many restaurant owners, operators, and managers, running a restaurant requires a physical space to act as a base of operations.
Here’s a look at some of the steps that go into leasing a restaurant and how you can help make sure that the space you choose is going to work for your needs today, tomorrow, and hopefully for years to come.
Cost is a primary concern when you’re determining what space to rent for your restaurant. The relationship between the amount of money you bring in and how much you know you’ll have to spend each month on rent and other business-related expenses can have an impact on your restaurant’s profit margin.
The average cost to rent a restaurant space can range considerably depending on factors such as geographic location (city), neighborhood (already popular or up-and-coming), type of space, and so on. For instance, a fine dining restaurant in a hugely popular live-and-work complex may have a much higher cost-per-square-foot than a pizzeria on an otherwise quiet street.
One survey of restaurant owners nationwide resulted in this snapshot about restaurant occupancy costs:
• Median monthly base rent: $5,000
• Median square footage of restaurant space: 3,500 sq. ft.
• Base rent per sq. ft./month: $1.50
• Base rent per sq. ft/annual: $18.00
You can use those figures as a guideline while putting together your own business plan and scouting spaces that feel right for your concept, but a big part of your financial security will be aligning your leasing costs with your projected revenue, which we discuss a bit more below. Also, don’t forget about variable costs associated with your lease such as insurance, utilities, and license renewals.
Leasing a restaurant space can be a daunting experience, but a little bit of preparation can go a long way. This prep is not negotiable because deciding on which space to rent could be one of the most important decisions you make in your entire career.
Before looking at rental spaces, it’s a good idea to have a restaurant business plan and budget in place to help you determine the type of space you need and how much rent you can afford. Consider doing market research, pulling data to help predict revenue, and calculating how much you can spend while still having some financial wiggle room in case things don’t go as expected.
Sometimes a pricier space in a more popular area can increase your revenue, but it’s not always a guarantee.
Talk with a real estate agent about what you’re looking for in a restaurant space for lease, but also be open to suggestions. You’ll want to start with a wish list, but evaluate each space thoroughly and choose a good location for your business based on:
Before you sign a restaurant lease, consider if your sales will be able to cover your expenses including your rent, restaurant POS system, employee costs, and more. One of the best ways to do that is to calculate the space’s cost per square foot, how many people you can seat, and how much you’d need to sell per seat to make all the numbers work. You may love a space that seems feasible at first but realize later that you can’t seat enough people per day at a reasonable per-person average (PPA) to meet your sales goals.
Figuring all this out ahead of time can help prevent you from renting a restaurant space that’s simply unable to get you to your bottom line. If you’re locked into a spot that doesn’t seem realistic at first, you may be able to tweak your menu or brainstorm a new restaurant floor plan that can help you align factors and manufacture a way forward.
Before you rent a restaurant space, you’re going to go through negotiations, and before you go through negotiations, you need to know what kind of leverage you have.
Do some digging and find out how long the space has been vacant and what kind of turnover rate the space has had in the past. Agreeing to fill a long-empty storefront could help you score a great deal, as could sharing your own successful business history or explaining how your restaurant will help fortify the area (a major bonus if the owner also owns the rest of the building or nearby properties).
Speaking of negotiation, your restaurant lease isn’t set in stone until you sign on the dotted line and the owner’s first offer is just that: an offer.
You may be able to negotiate items such as:
There are many more items to cover, so it’s usually best to enlist the help of a broker who knows exactly what to look for, what’s industry standard, and what should make you walk away for good.
If leasing a restaurant space doesn’t feel like the right move, you still have options.
There is more than one way to turn your dreams of owning or running a restaurant into a reality. Use the tips above to help guide you as you consider leasing the right restaurant space for your needs, then contact a Clover Business Consultant to find out how we can help you run your restaurant as smoothly as possible.CONTACT SALES
This information is provided for informational purposes only and should not be construed as legal, financial, or tax advice. Readers should contact their attorneys, financial advisors, or tax professionals to obtain advice with respect to any particular matter.