Finding the right space for a new restaurant is challenging. From the income of nearby residents to the attitude of your landlord, the location you select can determine whether or not your restaurant succeeds.
Understanding the importance of location is the first step to selecting the right space. But once you know what you're looking for, how do you go about finding it? What if the perfect space is out of your price range?
Before you sign a lease, know the dos and don'ts of finding a restaurant space to rent.
Do Your Restaurant Market Research
Before you start looking at spaces to rent, spend some time on market research. This will help you understand the pros and cons for each area where you could open your new restaurant.
What restaurants already exist in the area? Are they similar to yours, or do you have a unique concept that will stand out in the local market? Who are your potential customers, and where do they live? What is the income range for a neighborhood, and will there be enough people with discretionary income to spend money at your new restaurant?
You want to open a restaurant that stands out in the local market and attracts enough customers to generate the revenue you need. If any of the spaces you look at are in locations won't allow you to do that, it's time to consider others.
Don't Limit Yourself
Restaurants come in all shapes and sizes, from local hole-in-the-wall favorites to sprawling cafeterias. Based on the concept of your restaurant, you probably already have a good idea of what your restaurant will look like inside.
However, the perfect space may not, at first glance, be what you envisioned. Many restaurants are popular because of their location, not the shape or set up inside the building. Be willing to redesign the restaurant in your head to fit an unexpected space in a great location.
Do a Landlord/Location Background Check
Once you've selected a restaurant space, find out as much as you can about your potential new landlord. Try to have an in-person conversation to get a sense of their expectations and communication style. If you have trouble getting on the same page in an initial conversation, a long-term business arrangement might not be a good idea.
If there are other businesses in the same building, ask the owners if the landlord is easy to work with and addresses problems quickly. You can also ask about pros and cons of the location, foot traffic, and customer patterns. Look for both red and green flags before you decide whether to move forward.
Do Know Your Budget
Have an upper limit to your budget for rent, and stick to it during your search. Even if you find the perfect space to open a new restaurant, if the rent is out of your budget, it's not a smart business decision.
New restaurant owners often underestimate the costs of starting their restaurant, as well as how long it will take to become profitable. Over-extending your budget before you open will make it even hard to get a return on your investment.
Don't Be Afraid to Haggle
However, rent is often flexible. Most landlords prefer to rent their real estate rather than have it remain vacant. If no one has been in the space for a while — or if other properties nearby struggle to retain tenants — the owner may be willing to negotiate the rent.
Common rent negotiations for a new restaurant include not paying rent until the restaurant opens for business, known as pro-rating rent, or paying a low rent the first year of the lease, then gradually increase it annually.
Do Know What's Included With Rent
When you negotiate your lease, be specific about what is included.
Do you cover all the utilities, or are some included in the cost of rent? Consider trash removal, water, and sewer in addition to heat and electricity. If you aren't able to negotiate the cost of rent down, you may be able to persuade your new landlord to cover some of your utilities.
Your lease should clearly state who is responsible for building repairs, required renovations, general maintenance, and pest control. There should also be provisions about insurance coverage and liability in the case of damage to the building, both in the case of negligence (for example, a fire in the kitchen) as well as acts of God (such as an earthquake or flood).
Do Have an Exit Plan
No one wants to think about their restaurant closing, especially not before it is even open. But many new restaurants close within the first couple of years.
For both your peace of mind and practical reasons, limit your lease to one to three years at the outset. If all goes well, you can extend it later or choose to move to a bigger space.
Your lease should also include provisions for how and when it does end. Your landlord should be required to notify you several months in advance if your lease will not be renewed or your rent will be raised.