Slow Going for Quick Service

Through the highs and lows of an unsure economy, restaurant users, particularly quick-service concepts (QSRs), have historically been the prevailing force behind an active retail market. While the stream of calls from QSRs shows the tenant side is keeping up its end of this grand bargain, market conditions have been standing in the way.

The continual ups and downs in the market have caused such belly-aching fluctuation that landlords have become more willing than ever to renegotiate leases for their more stable tenants. Rent reductions and other concessions are even offered to tenants who, for the most part, have maintained their side of the deal. As a result, the market has been lacking new food-ready inventory, pushing rents far above their fair market value and allowing landlords to be stricter in their demands for incoming QSR tenants. Security guidelines have become more stringent, financial documents have come to carry more weight and four- to six-month security deposits have become the norm. Landlords are prioritizing credit tenants with additional locations and pristine landlord references. Users have to “take it, or somebody else will.”

This leaves QSRs having to make adjustments to their search, allowing for neighborhoods, sites and location sizes they would have otherwise not considered—and still they end up fighting among themselves for that rare piece of usable real estate. These food users are so anxious to sign a lease that more often than not, they end up digging themselves in too deep. The money for capital improvements on the space, not to mention the luxury of some breathing room, has been dumped into an extra few bucks a month in rent and a sizeable security deposit that will be held for the length of term. Right off the bat, success has become a difficult prospect and brokers, more than anyone else, are feeling the heat as there is an abundance of possible deals in a market that has nowhere to deliver them.

As a broker, I work to find the silver lining and orchestrate a fruitful deal for the landlord that also gives the tenant a fair shot at success. In fact, choosing the right broker is an important step that, combined with an intelligent concept development, proper time and due diligence, can help make a concept prosper.

Luke’s Lobster is a strong example of a successful concept deployment in Manhattan. As initial beginners, Luke’s relied on mediums such as Craigslist to uncover opportunities and find personnel. As time went on and the concept gained popularity, the principals opened doors to an experienced broker and began to plot a formulated expansion plan. They have done a terrific job of branding and exposing the concept throughout the city and to new markets including Washington, D.C.

In this city, retail and restaurant spaces are often delivered as-is, at a slightly different size than ideal, and they usually require some degree of construction. First-time or beginning users must learn that in a Manhattan market, you must be open-minded and willing to make adjustments for each scenario. As brokers, we try to keep these users out of their own way and hold their hands, if needed, to cross the finish line. Eventually, the more experience an operator gains and the more locations they open, that user will become more proficient in completing deals, visualizing the potential of new sites and understanding the market in general. But the market also has to be willing to work with the brokers and tenants trying to navigate the bumpy road to success. The current cycle is detrimental to the success of entrepreneurial concepts and makes it very difficult for today’s QSRs to get off the ground.

I easily field about 10 to 15 calls a day from new QSRs, all of whom are begging for a bone and a foot in the door. At the end of the day, it falls on the broker, and relationships mean everything. Although these users are not initially the most appealing, we must not neglect them.

The next Chipotle or Momofuku could be right around the corner.

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