M id A tlantic Real Estate Journal — Retail Development — February 2025 — 5A
www.marej.com
R etail D evelopment By Joseph Latina, SIOR and Christopher Moore, CCIM, LMT Commercial Realty/CORFAC Int’l. Changing Trends in Restaurants: Challenges and Opportunities
he restaurant industry is experiencing a sig- nificant shift in their traditional model driven by changing market conditions and economic pressures. Tighter Margins and Increased Costs Profitability has become a growing concern for restaurant owners as traditional bench- marks are becoming nearly impossible to maintain. Higher labor costs, increased food costs, inflated occupancy costs, delivery service fees, and rising credit card processing fees are making it increasingly difficult to maintain healthy margins. As lawmakers continue to raise the minimum wage, small business is feeling the pinch. Although this increase in wages is certainly justified and neces - sary, the restaurant industry is struggling to absorb this rapid correction. Traditional bench- marks of 20%-25% labor costs have increased by 10% or more in some cases. Consumers have been expe- riencing rising costs at their local grocery stores since the pandemic, so it is no surprise that the restaurant industry has been dealing with the same issues. Restaurant op- erators must pay very strict attention to their product purchases, and in many cases are shrinking their menus to better manage costs. Retail vacancies remain low, while tenant demand remains high for existing commercial properties. This demand com- bined with the increased cost to build new retail properties, rising insurance costs, and higher expenses for property management are keeping re- tail leasing rates high. These factors all lead to very high occupy costs for restaurants. Traditional benchmarks of 6%- 10% occupancy costs are very difficult to maintain. The Rise of Food Delivery Services Third-party food delivery platforms have fundamen- tally changed how consumers interact with restaurants. While these services provide convenience and expand cus- tomer reach, they come at a significant cost to the opera - tor, often eating into already razor-thin profit margins. As a result, many restaurant own- ers are struggling to balance in-house dining with the costs associated with delivery and takeout services. T
rather than spending money on restaurant meals. While dining out remains a staple of social life; inflation and eco- nomic uncertainty have pushed many households to cut back on discretionary spending. Opportunities Many current restaurant owners, particularly those from the older generation, are looking to transition out of their current businesses as they approach retirement. However, unlike in the past, often these establishments are not being passed down to the next generation, as many of
their children choose careers outside the demanding food service industry. At the same time, restaurant sales often include commercial property, adding another layer of complexity to transactions. Next generation, or new buy- ers today must not only as- sess the business’s potential but also navigate real estate market conditions and rising interest rates. Despite these challenges, the restaurant industry remains an attractive investment for the right buyer who can adapt to changing consumer habits
through innovative marketing, menu optimization, personal ef- fort, and efficient cost manage - ment to find success in today’s evolving landscape. There is currently a his- torical number of opportunities and options available to today’s restaurant entrepreneur in- cluding many long-established restaurants, asset purchases at deeply discounted costs, and 2nd generation leasing oppor - tunities. Creativity is the key to a successful acquisition of a turn-key restaurant or res- taurant space. Conventional continued on page 6A
Joseph Latina
Christopher Moore
Shifting Consumer Preferences
Another major trend impact- ing the restaurant industry is the growing preference for din- ing at home. Consumers today are more budget-conscious, often opting to cook at home
We see deals from your perspective.
Our global network of 75 commercial real estate offices is the clear choice.
Made with FlippingBook. PDF to flipbook with ease