A QUIET RESTAURANT MAY BE A BOOMING RESTAURANT

The rise of off-premise dining is reshaping restaurant real estate, driving smaller footprints, new site strategies and evolving operational demands.
By Charles Skaggs for Western Real Estate Business

Across the decades, brokers and operators have assessed a restaurant’s health (in part) by the buzz of its dining room. A busy floor meant a thriving concept. But today, a quieter dining area may still signify that a restaurant is crushing sales thanks to the popularity of takeout, curbside pickup and the meteoric rise of third-party deliveries.

Americans’ pivot to off-premises consumption may have started with the pandemic, but it has proven its staying power, evolving from a temporary reaction into one of the most transformative shifts in the restaurant industry.

Carryout and delivery can now account for more than 25 percent of a full-service restaurant’s sales. Some of my fast-casual restaurant clients have noted that upwards of 60 percent of their business is generated from off-premises orders.

Smaller Kitchens, Bigger Opportunity
Whether it’s through new leases or upgrading existing space, concepts once dependent on in-house diners are now dedicating entire sections of their kitchens and even their parking lots to fulfillment zones. These very strategic operational adjustments have one goal: to accommodate app-based and online ordering from the new digital and mobile-first diner.

On the real estate side, some brands have begun reevaluating the size and scope of their restaurant footprints. They’re reducing square footage while increasing volume via more efficient off-premise models. In markets where competition for space is high, these smaller prototypes are also unlocking access to high-traffic trade areas or infill locations that might have previously been out of reach for larger formats.

One of our clients, Portillo’s, has introduced a “restaurant of the future” that reduces the average footprint of its new locations from 7,700 square feet to 6,500 square feet, with the potential to shrink even further. By trimming its restaurant prototype by at least 1,000 square feet, Portillo’s is not only reducing its build cost but creating an opportunity to maintain the same revenue targets while reducing overhead. This is all because more of its transactions now happen outside of the restaurant walls.

Considerations for Brokers, Landlords
These changes are compelling in competitive markets like Metro Phoenix. Average retail vacancies in the Valley sit near the near historically low mid-4 percent range, with average rents around $39.67 per square foot (triple net). They can even exceed $80 per square foot in top-tier corridors.

The shift in required restaurant space is not limited to Arizona. We’re seeing these same trends echoed in urban and suburban settings across the West – a part of the nation shaped by tech-savvy consumers and a lifestyle prioritizing speed and convenience.

For those of us in commercial real estate brokerage, this new normal is redefining what makes a restaurant space – and, to some degree, us as brokers – successful. By staying informed about transformative trends, we can help our clients achieve long-term success with restaurant locations, footprints, designs and operations that serve a consumer who is increasingly dining from the comfort of their couch.