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You’ve heard it before: “Location, location, location.” The idea that location is the determining factor in whether a business succeeds or fails is especially true for restaurants. Even with great food, rockstar personnel, and a clear strategy, new restaurants risk failure if they open in a location that just isn't the right fit.
When aspiring restaurateurs set out to open a restaurant, they often seek to attract investors to help get the business off the ground. As part of that process, they must create a comprehensive restaurant business plan where they can lay out their entire vision for the new restaurant. In addition to the restaurant’s projected finances, seasoned restaurant investors will also carefully evaluate the restaurant real estate portion of the business plan.
Restaurant Real Estate 101
Choosing the right restaurant location is critical in launching your new restaurant business, in getting the funding you need to get off the ground, and making sure it thrives once the doors are open.
Selecting a Neighborhood for Your Restaurant
Before you can look at specific sites for your new restaurant, you need to identify your ideal neighborhood. In most cases, you probably won’t sign on the dotted line for your restaurant space until you’ve received funding from investors. But to attract the right investors and lay the foundation for success, it’s essential to choose a neighborhood based on the following considerations: target market, market conditions, and competition.
Target Market and Customer Personas
The first step in finding the ideal location for your new restaurant is identifying your ideal customer. Think about the type of person your restaurant aims to attract, then describe them in as much detail as possible to build a persona. Ask yourself the following questions:
How old are your ideal customers?
Do they live alone? With roommates? With a partner or a family?
What’s their income level?
What do they do for a living?
What do they spend money on?
What do they do for fun and entertainment?
The idea is to create and describe a clear image of who you intend to target, thinking specifically about who will become your most loyal customers.
As you consider neighborhoods for your new restaurant, pay careful attention to how the market in these areas matches up to your target buyer. Note demographic statistics, economic conditions and forecasts, traffic (including foot traffic), and nearby places of interest. This will give you a good sense of how well your restaurant will perform. If the existing market conditions don’t align with your vision, it’s time to look in a different location.
Competition is a key factor in selecting the right neighborhood. What kind of restaurants already exist in the area? How do they compare to your concept? How are those restaurants faring? How will your concept be unique? If similar restaurants have not done well in the neighborhood, why will yours? If there is a lot of competition in the area, what is it about your concept that will give you a competitive advantage?
Selecting the Site for Your Restaurant
Once you’ve identified a neighborhood that fits your concept and target market, it’s time to select the specific site for the new business. Know that it might not be a quick process. It takes some restaurant owners years to find and lock down their perfect location.
When looking for restaurant real estate for sale or lease, here are some things to think about.
Size and Capacity
The size of the building should be based on your vision for the business. A space may look more than adequate, but it will look different with tables and customers inside. Don’t just eyeball it. Take the time to consider everything and everyone that will occupy the space.
Pick a site based on your intended seating capacity and operations, and if you plan to have a bar area and a dining area, make sure both the size and layout of the space will be able to comfortably accommodate them. In the kitchen, plan on space for staff, ingredients, and all your essential restaurant equipment. Drawing detailed floor plans can help fulfill the property’s potential and give you a realistic idea of what to expect.
Do you have the essential restaurant kitchen equipment and supplies you need? Check off this list to make sure your restaurant kitchen is all set.
Foot Traffic and Visibility
When you're the new sign on the block, a little visibility can go a long way. You need to be able to alert potential customers that your restaurant exists and is open for business.
Make sure drivers and passersby can see the restaurant sign clearly from the street or sidewalk. If the concept is a discreet underground speakeasy, you better have a solid strategy for attracting business in other ways.
You may want to look into who occupied the space in the past. How long did they stay in the space and why did they leave? If there have been many failed restaurants in the same location, it’s worth trying to understand why.
If possible, talk with some of the previous tenants to learn about their experience in the area and with the landlord, if you're leasing. Unless you uncover a serious issue with the site or the landlord — or you’re too superstitious — don’t give up on the space just because a previous business failed. If the previous tenants were restaurants, how is your concept better suited for the location than they were?
What to look for in restaurant real estate listings
When browsing restaurant real estate listings, it's critical to determine what’s legit and what isn’t. If you can swing it, work with an experienced commercial realtor to point you in the right direction. Once you find a commercial property that aligns with your needs and vision, make sure to ask for photos and videos from the seller. These will give you a good idea of whether the space will work for your restaurant concept. If it still appeals, make an appointment to see the property in person. You’ll need to know what the space looks and feels like in real life before agreeing to anything in writing.
Additionally, know whether you plan on renting and buying your commercial restaurant space. Restaurant real estate for lease means you’ll have a lease contract and a monthly payment that goes straight to your landlord. Buying a restaurant means you’ll have your own mortgage on the property.
Looking for restaurant real estate for sale
Many restaurateurs dream of the day they can look for restaurant real estate for sale. The benefits of buying commercial property are that you’re not paying into your landlord’s pockets, but building your own equity and credit through a monthly mortgage payment. Also, the place is yours to renovate and decorate as you see fit. Yet, you’ll also be responsible should something go wrong. Be prepared for the added level of liability when you add “owner” to your job title.
Buying restaurant real estate is great if you know you love the area, have plans to run your business long term, and have the funds to support such an investment. A good first step in buying a restaurant is to work with a commercial real estate broker who specializes in restaurants.
Looking for restaurant real estate for lease
Restaurant real estate for lease has its perks, especially if you’re just launching your business or are new to the area. Renting can give you some time to try things out in one area before committing to buying property there. Plus, you can rely on a landlord to step in if you experience problems with the physical property.
Renting can also have its downfalls. You may think the price is right on a rental only to realize that the neighborhood isn’t a fit for your concept. Then you could be stuck in the wrong place for the length of the lease. Leasing can also be a headache if you and your landlord don’t see eye to eye. Ideally, find a property to rent where you can work with a landlord who treats you more like a partner than just a tenant.
Choose your restaurant real estate wisely
Finding the right restaurant location can take a long time — even years. But there's a reason that people spend so long looking for the perfect spot; the location can make or break a new restaurant. When searching for restaurant real estate, be sure to take your time and consider all the above factors before choosing the site that’s best for your restaurant.