Restaurants would do well to rethink their real estate in the wake of disruptive trends such as the labor shortage and the supply-chain crunch, writes Joe McKeska, a Senior Managing Director at A&G Real Estate Partners, in a Nov. 8 ‘Speakerbox’ column for Nation’s Restaurant News.
 
“Depending on the nature of the real estate and business in question, many key variables in restaurants’ real estate strategies have been shaken like a snow globe in the wake of Covid-19,” writes the veteran retail executive.

In “A New Way to Look at Restaurant Real Estate,” McKeska points to multiple shifts that ought to lead some operators to take a second look at their portfolio strategies:

•  Work-from-home trends mean that more customers are out in the suburbs rather than downtown.
• Thousands of restaurants are struggling to find staff.
• Uncertainties abound with respect to construction costs and timetables for new-store buildout.
• Mobile ordering is increasingly popular, and some consumers are still steering clear of indoor dining.

McKeska advises restaurant decision-makers to determine  whether their current real estate strategies reflect such new realities. He notes that it is particularly important to consider how alterations in one variable may affect the rest.

“For instance, many operators are prioritizing drive-thrus, pickup windows and outdoor dining,” McKeska writes. “This stands to shape the square footage, layout and location (i.e., outparcel, inline or endcap) of new stores, with cascading effects on factors such as site-selection criteria, timetables for permitting/construction, and lease-negotiation strategies.”

In some cases, new factors could even tip the scales on whether to close a store. “Imagine two middling stores that are roughly the same on paper,” McKeska writes. “At one shopping center, the landlord is willing to fund construction of a drive-thru as part of your lease-renewal negotiation; at the other, the landlord is less flexible, with lower cash reserves. Clearly, the first center would likely be preferable given the addition of a critical element to meet changed customer needs and expectations.”

While the disruption is such that restaurant chains may be tempted to put off making major real estate decisions, McKeska notes that inaction can translate into:

• paying above-market rents;
• continuing to operate profitability-eroding underperformers; 
• losing well-positioned locations to competitors;  
• failing to take advantage of adaptive opportunities such as drive-thrus, ghost kitchens, outdoor seating and smaller formats, and 
• losing the opportunity to shed unproductive locations at an affordable exit price at a time when there is strong demand for restaurant space.

“For most restaurants,” the executive concludes, “the time is now to press ahead with multiyear, comprehensive real estate portfolio reviews and make some educated and well-placed bets on the future.”

The full article is available here.