Challenges and Opportunities for Restaurant Real Estate in Houston
We’ve all seen the impact COVID-19 has had on businesses around the world, especially those in the retail and restaurant industries. The pandemic has been a rollercoaster for entrepreneurs, from the first shutdown in 2020, to pre-covid sales numbers returning in early 2021, then the unexpected Delta variant that has caused sales to dramatically dip once again. While many companies have had to make the tough decision to close their doors for good, others have seen an opportunity to take a chance and expand during this time. Thankfully, there is a positive uptick in sales across the board, and restaurant owners are starting to see the light at the end of the tunnel despite some lingering issues.
The Current Landscape
The beginning of 2021 started out strong for retailers and restaurants. This positive start caused landlords to increase rental rates to pre-covid prices, and despite the Delta variant, they have held steady at those rates. The gap between what landlords are charging and what tenants can actually pay and the decline in sales from the new strain have caused restaurants to take another big hit. Additionally, there are still many restaurants that have yet to re-open, and a large number that have closed for good. Due to this, we’re seeing new spaces come on the market every month. With this influx of availability, some companies have seen opportunities for expansion, so the need for vacant spaces is very apparent. It’s also not just major national chains that are seeing this growth. Even some of the smaller regional or local brands are taking the leap of faith to expand. We’re receiving calls weekly from clients who have been wanting to expand for years and are now ready to make a move.
Top Performing Spaces
Leasing pads and second-generation restaurant spaces are currently flying off the market. If a landlord has a vacant space in a decent location, they usually lease it out within a month or two. A variety of companies – from franchises and corporate quick service to large casuals – are making deals and backfilling spaces as soon as they become available. The fast-food space is also seeing tremendous growth. That sector of the industry didn’t experience as much negative impact from the pandemic as others, so anytime a freestanding drive-through comes on the market, we see several offers come in very quickly.
What’s Still Hurting the Restaurant Industry
In addition to the increasing the rental rates , restaurants are also having difficulty finding and retaining staff members, even with an increase in minimum wage. Some of the larger corporate restaurant groups are taking it upon themselves to go to the government and request financial assistance such as the one disbursed at the beginning of the pandemic, relief on taxes and more. Additionally, many business owners are facing obstacles with construction, whether it is a stall in progress due to workers becoming sick, major delays on materials being shipped or costs that have skyrocketed. Even utility workers are backlogged, causing some restaurants to have to wait for their electricity to be turned on and utilities to be connected. Just about every industry is feeling the effects of these issues, and overall, this has caused restaurants to continue to face challenges.
At the beginning of 2021 it felt like we were in better shape than last spring, then we were hit with the unexpected Delta variant. However, over the last month we’ve seen things start to take a turn for the better. Deals are being done and each week there are more restaurants that are finally reaching a place where they have enough team members to be able to open for normal hours. While there are still obstacles to work through, traffic and sales volume are increasing overall, and we’re hoping this positive trend continues as we look towards the end of 2021 and the new year.
By: Grant Walker
Grant Walker currently serves as Senior Director for the national retail broker division at Lee & Associates – Houston. He specializes in tenant representation with a strong national focus in the restaurant industry, assisting with site selection and market penetration for several national and regional clients, as well as his continued work as a retail leasing agent for multiple landlords throughout the Houston market.
Lee & Associates – Houston is a fully-integrated, commercial real estate company. Our business-minded brokers specialize in office, industrial and land real estate investments. As the fastest-growing, broker-owned firm in the nation, we are uniquely qualified to support our clients’ needs in the local, national and international markets. To learn more visit www.lee-associates.com/houston.