10 Apr How to Choose a Premise for a Restaurant. Hospitality Real Estate
The restaurant business is developing rapidly all over the world: every month in a major city alone about 10-15 different hospitality establishments are opened and, in some months, even 30. The restaurant business is beautiful in itself, and it tends to be fashionable to be called Restaurateur. This year the trend will continue, despite the covid-19 and global quarantine which led almost all economies to close down the tourism and hospitality business.
Most restaurateurs – both experienced and beginners – as a rule, have in their minds a certain idea or a finished project. A perfect picture: such a floor area, interior design, atmosphere, service style and unique experience they will be providing to their guests.
The right location is needed for all food and beverage projects, but not every place is convenient for it. Where to look for those perfect places and how not to make a mistake when choosing the one. Kyryll Ushakov, an expert in the restaurant business and founder of Proriat Hospitality Real Estate is going to share the checklist he usually uses at his work.
Finding and selecting a space for a restaurant
The successful ROI period of your restaurant depends on the choice of location. The right location provides solid traffic of guests and stable income. Of course, when opening a restaurant, it is important to consider many other factors, but not even one of the most ingenious concepts of your business will make a decent revenue if there is no right place for it. Lease or buy premises where it’s beneficial in every sense and not where it’s just cheaper.
So where to start
In my experience, I can distinguish two fundamentally different property selection strategies.
First, from the very beginning, you need to define the concept of your restaurant. Identify what people in your market really want to have and how much they are ready to pay for that. Remember it’s all about what your potential guests’ expectations and demands are and not about what you want to offer them. Think about food and beverages you want to sell, create and do menu testing to understand if your product is liked by people you are planning to target. Determine the format of the restaurant and calculate the budget.
Make a business plan, specifying all the technical requirements and criteria. And after that, you are good to go to start the property search phase.
Second, look for an attractive lease offers on the market and create a concept based on technical capabilities of a location. The second method is not so rare and unpopular, but I’m still a fan of the first approach. Because, only with this strategy you can manage requirements and control your business in the future.
To help you, I decided to make a short list of how to choose the right location for a restaurant.
Make sure you already know what your concept is going to look like. For instance, you want to create an authentic Italian or Asian cuisine, maybe a burger house or a pub with craft beers, a coffee shop or a bakery with the best cakes in the town. Don’t forget about the format of the restaurant: fast-food, street-food, fast-casual, fine-dining etc. It is very important to decide on the menu, at least determine the categories of dishes and cooking technologies, will you cook them on the grill, fry, steam, bake or pickle. Also, here you can include the budget, the desired layout and the choice of the city district.
Next, we draw up the technical task for the premises. It should be as detailed as possible and take into account all the nuances without which it will not be possible to bring your concept into life. For example, stained-glass windows, ceilings height, a parking lot, number of ladies and gents’ rooms, electrical load factor and many other important points that are critical for the implementation of your project.
The search itself. According to the terms of reference, we begin to look for a suitable location. You can do it by seeking it in real estate social media groups, classified websites, and other relative platforms. The ideal option is to drive in the area of the city that interests you and see what places are being offered. Or contact real estate agents, but again you will need to give them all your requirements, so that they do not offer the wrong options and do not waste your time and resources.
Selecting the right location. Be sure to consider a few offers. Do not stop at the first option that partially meets your requirements. There will always be plenty to choose from. Compromise here is the most undesirable option. Study your rental agreement in detail and scrupulously. It is very important. Don’t just read it but screen every word. It is best at this stage to hire a competent lawyer who will draw your attention to all the pitfalls. For example, the place is not intended for a restaurant business. It seems the most obvious point, but at the same time, many make such a mistake. Any hidden terms and tricks from the owner of the premises that are written in small print and are veiled denial clauses. In practice, it will turn out so that he will be able to ask you to release the place at any time for any made-up reason.
Can either be included or excluded from the rent cost. And here it is very important to understand what exactly you are paying for. Because, there are times when, due to utilities, water and heating bills exceed a modest rental rate
If they are by agreement, if so, how long do they last. Find out who was renting the place before and why the previous tenant moved out. Some places can stay empty for years, and then it’s going to be a little more difficult to find out. But if it was some kind of restaurant or café be sure to read the reviews on social networks or on TripAdvisor to understand what trace this location left behind. Although, if you have a strong brand and you know how to competently promote a restaurant, then other past failures should not bother you. However, for new restaurateurs, the notoriety of the place is still a big challenge. When you have finally decided on the premises, once again review your business plan and adjust it taking into account the criteria of the place you have chosen. Namely, highlight the real rental rate add utilities that you will pay, calculate the number of seats define traffic etc. This is necessary so that you can objectively evaluate your future business in cold-blooded and realistic manner. Once again, do not make a choice on emotions. Everything needs to be calculated. Then your venue will work stably and profitably.
And in the end, I’ll talk a little about the risks when choosing a location for a restaurant. Remember, if you open a cafe in a residential building your calm life depends on all its residents. Any complaints about loud music or a noisy grill, even if you don’t have either the first or second, will most likely result in people contacting the appropriate authorities. Make friends with everyone. You need to remember each neighbor in person and know which one is negative about your place and why and try to build friendly relations with them.
Another common problem when renting premises in residential buildings is the lack of ventilation systems. There are fabulous premises at the pleasant rental rate in a great location and with impressive people traffic, but the ventilation system is being missed or cannot be installed due to the specification of the building. My advice, do not consider such premises. It may be that you somehow install it and it will work fine, but problems will probably begin with its registration.
Finally, I’ll briefly tell you how my team and I were choosing a location for a coffee shop during our latest work on a project. We looked for it for about two months and wanted it in the downtown but not on the main street, with entrance from the end of the building, and with a nice terrace. There should have been a predefined interior design with desirable wall and floor plans. That’s why it took so much time and effort, but believe me, this is not the longest time in decision-making when you are looking for the right place. Very often the search can last up to six months or even longer. But the following coffee shops we are opening on the premises that are found and offered to us, since our brand is recognizable and generates solid traffic of people and attracting many repeat guests.
What rental price is acceptable?
Maximum 10% of total restaurant revenue is a well-known international indicator that most of the F&B projects can afford to pay to make economic sense. And if your startup cost is about 500 000$ you should have high level of expectation that the restaurant in this location will be capable of generating annual sales of at least from 600 000$ to 750 00$
Search and selection of premises for a restaurant are time-consuming and at the same time, it’s one of the most important stages. You have to use analytical and intuitive methods to identify the potential of profitability of the place you want to build a new restaurant on. Of course, there many other factors and tips a new restaurateur has to consider and be aware of as they may vary from place to place.
For more than 10 years Proriat Hospitality Partners is developing its own efficient strategy helping to find the best commercial locations, minimizing any possible risk, saving time and resources.
Our team of international real estate experts is available to your inquiries at any time.
We are looking forward to starting the work on your new project.