How to Find the Perfect Restaurant Space for Lease
Finding the perfect restaurant space for lease is an important decision because it will impact how much money your business makes. You also have to consider all of the costs when opening a restaurant. These include labor, utilities, marketing, and overhead expenses.
When it comes to the cost of opening a restaurant, your location is just as important. Finding the right neighborhood can dictate profitability when you factor in all these things like commercial space lease, permits, and renovations.
You might be thinking, “How can I afford a restaurant property?”
We have outlined five ways to find the perfect restaurant space for lease.
Set A Realistic Budget
Many restaurants start looking for new space before they know how much money to spend. But first, you need a budget, so here are some things that will help you set one.
Restaurateurs usually spend 5 to 10% of revenue on rent and utilities. When considering the space for your restaurant, you should think about how much revenue it will generate.
For example, if you have a quick service burrito in Austin that expects to make $40,000 per month, you can spend at least $2,000 to $4,000 on rent and utilities.
If you are opening a restaurant but don’t know how much space to rent or what kind of sales that would generate for your business, ask other restaurateurs in the area with similar concepts.
If your realtor shows you a space that’s too expensive but it meets all of the criteria on your list and is perfect for what you need. Would you be willing to pay more than expected?
It’s essential to know how much money your restaurant needs in sales each month so that you can cover rent, labor costs, utilities, and the cost of goods sold.
Prepare for the worst.
Most commercial spaces lease for 3 to 5 years at a time. If you experience slow months, or if the economy is not that good, could you still cover rent?
If you are struggling to make ends meet and have done everything in your power, it is worth speaking with your landlord about renegotiating the lease. If external factors like construction or economic problems affect property sales, landlords might be more open to renegotiation.
Thoroughly Research the Neighborhood
Restaurant owners should think about location when searching for a restaurant space for lease. Tom Scarda, CEO and Founder of The Franchise Academy, says that restaurant proprietors need to research the commercial space’s location based on these factors:
When looking for a restaurant space for lease, you need to consider if the area is up and coming or well-established. While both have their advantages and disadvantages, the site must have customers who live there or visit often.
The location of your restaurant can have a significant impact on how successful it is—the more people who can see the restaurant, the better.
What are other businesses nearby? If you want to open a smoothie shop, there must be a gym next door. This will generate business for both of the shops.
When you’re looking for a new location, consider the other businesses in your area. If many establishments offer similar services and target the same customer base as yours, it will be more challenging to get noticed without spending more on marketing.
However, if there are complementary businesses nearby like spas or restaurants which attract different crowds than yours, forming partnerships with them can give people who visit both of your locations an incentive
Be wary of spaces that other businesses have abandoned. You may be a fantastic business person, but if this space has not worked for others in the past, it probably won’t work for you. Take your time in locating a site that will benefit your company’s growth.
5. Customer base
If you want to open a restaurant in an area, the target customer must live there. Census data can be used as research for your potential customers.
6. Foot traffic
What is the population density of your area? Do you have enough foot traffic to sustain a business, or will marketing be necessary for customer acquisition and retention?
Visit the neighborhood day and night to see if your business fits in with its surroundings.
Is there easy access to the commercial space via public transport? Is parking available on-site or close by?
Ensure your restaurant is in a convenient location, accessible to the customers you want, and that there are enough people around who match those customer demographics.
Find Out How Much Space You Need
The more space, the more you will be spending. On the flip side, the less space, the fewer customers you can serve. Small restaurant space for rent can provide other benefits.
One of the advantages of a smaller restaurant is that you can pay more attention to your guests and provide them with an intimate dining experience. Another advantage is that it takes less time and money to hire staff.
When deciding how much space you need for your restaurant, consider these factors.
The type of restaurant you are running will dictate the amount of space it needs. A takeout spot can get by with just a pickup counter; full-service restaurants need ample seating.
It is recommended to allocate 60% of square footage to the dining area and 40% to kitchen space.
Pay attention to industry standards for customer seating space. For example, fast-food restaurants offer 11 to 14 square feet per seat, while fine dining establishments provide 18 to 20 square feet per seat.
If you want your restaurant to host events and gatherings, make sure that it has enough space for a private dining area.
Consider ways that you can maximize every inch. In cities like New York, where commercial space is among the most expensive in the world at $171 per square foot, it’s essential to think about making the most of a smaller space.
Calculate Sales Targets to Cover Expenses
When choosing a commercial space, it is essential to consider the size of your operation and how much food sales will be needed.
To figure out how much you need to sell per seat to afford a commercial space, first, do the following:
- Find the cost per square foot of the retail space.
- Compute the square footage per customer.
Determine the cost per square foot of the commercial space
If you want to be profitable, then the cost of your area is essential. In New York, for example, a trendy location in Manhattan or Brooklyn will have an average rent per square foot at $120 per square foot, whereas Los Angeles has a much lower rate with averages of around $52.
Determine the square footage per customer
Restaurants usually allocate their space with 60% of the area for dining and 40% assigned to the kitchen, service stations, storage spaces, etc.
- Dining room: 60% of total square footage
- Kitchen and other spaces: 40% of total square footage
The size of each guest’s seating area depends on what type of establishment you want to open. Here are some guidelines:
- Fine dining: 18 – 20 sq. ft. per person
- Full-service dining: 12 – 15 sq. ft. per person
- Counter service: 18 – 20 sq. ft. per person
- Fast food dining: 11 – 14 sq. ft. per person
Assess the Potential of the Restaurant Space
Beyond external factors (such as location and price), it is essential to think about the long-term potential of the restaurant space for lease when it comes to internal factors (such as condition and features) before signing a lease.
Do you want a commercial space that is ready to go as soon as possible, or do you prefer the challenge of making it your own? You will always need to make adjustments and personalizations, but not all spaces require the same amount of work.
If you’re looking to open a bakery and your former space was previously configured as one, then there will be more minor changes that need to happen. But if the previous occupant of your future restaurant had been a dentist’s office, more work would have needed to be done for it to serve food.
This means that you should consider the condition of a restaurant when determining its price. If it has been sitting on your desired location for months with no one wanting to rent, but there is potential for significant renovation to bring up prices and increase quality, this may be an option.
Do you want patio seating for your restaurant? Then an outdoor space is a must. If you want a waterfront location, consider adding a water feature.
Before looking for a space, think about what is essential to your restaurant. Having an idea of the layout before looking for a lease restaurant space will help ensure that all needs are met.
10 Ways to Negotiate the Rate for Your Restaurant Space
1. Don’t be afraid to walk away
When negotiating a lease, it’s important to be rational and objective. If you’re not willing to compromise on price, be prepared to walk away from the space.
A beautiful location may come with a high cost that could mean struggling financially if you don’t have enough for your bills and other expenses.
2. Consider the pros and cons of brokers
As tempting as it may be to work with a real estate agent or broker, they typically work for the landlord.
Agents ad brokers are not always looking out for your best interests; they want to get the highest rent possible and secure a hefty commission.
3. Be subtle
As a buyer, you want to hide your interest in the space and not be too forward. If you say things like “this would work great for our tables” or “I love that it has original moldings,” this will show sellers how interested you are.
Do not show how much you like the property to avoid giving away your position.
4. Get feedback from other building tenants
Building tenants can provide feedback on the landlord. Is the property adequately maintained? Are the rental rates stable? The things the tenants tell you could help you during the negotiation.
5. Consider rejecting the first offer
Even if the first offer meets your budget, it’s worth trying to negotiate for a lower price. The real estate agent and the landlord may be willing to work with you.
Most agents expect you to counteroffer, so always try to push back on the original asking price.
6. Assess your bargaining power
Many factors contribute to your bargaining power, such as building vacancy rates and tenant turnover rates. Other factors include business history and your credit history.
7. Ask for more than you need
If you don’t ask, you won’t know. There’s no harm in asking. After all, landlords expect negotiations. The worst thing that could happen is them saying “no.”
8. Be mindful of phantom space
Many restaurant tenants are paying per square foot, but they’re not getting the value they pay for. Consider measuring your length independently to make sure you’re being charged fairly.
If you don’t negotiate, you are not maximizing your potential for a fair deal. It is essential to take time and avoid deciding on the spot because it could accept unfair terms without knowing.
10. Get help
As with any new venture, it is essential to do your research. Whether you read up on leasing laws or reach out to an experienced restaurant consultant, there are many ways that the experience of others can help make this process smoother.
Restaurants are a risky business. It is essential to negotiate at every stage of the process and ensure you have your priorities in order.
Final Thoughts on Finding the Perfect Restaurant Space for Lease
The choice of space for your restaurant can be the deciding factor in whether or not it succeeds.