What You Always Wanted to Know About Restaurant Leasing (but were afraid to ask)!

Guest Columnist: 

Paul G. W. Fetscher CCIM, SCLS,

President,
Great American Brokerage, New York, USA

A
restaurant is a food warehouse, storage, preparation, cooking, assembly, sales,
consumption and disposal facility. 
Consider the complexity of fitting such a manufacturing plant into
structures with another function.

Assume
a 300 square meter restaurant as compared to a 300 square meter dress
shop.  The comparable sized restaurant
will require 250% of the air conditioning, 10 times the electrical service 100
time the water consumption, plus gas service and black iron venting and
exhaust.  It will also require an
internal 3 hour rated fire wall and a fire suppression system over any open flames.

These
requirements make restaurants the most expensive per square meter investment in
any retail or hospitality property.  Such
capital investment requires a concomitant long term lease to amortize such a
large investment.  Therefore it is
extremely important to assure that the right concept is in the right place.

Some
restaurants are destinations; and others are parasites.  It’s important to have the right fit! 

Destination
restaurants will draw from the greatest drawing radius; have the highest check
averages, but the lowest frequency of customer visit.  Examples in Dubai would be the Aquara
Restaurant, the Al Mahara Seafood Restaurant at Burj Al Arab or Benihana. 

Impulse
restaurants are usually found within an arm’s reach of desire.  Dunkin’ Donuts, Sbarro’s and Starbucks are
good examples.  These have a high
frequency of customer visit, low prices, and are very convenient to a patron’s
existing traffic patterns.  That might be
a cup of coffee on the way to work, or a noon break not far from work or
convenient to a shopping trip.

Casual
theme restaurants are somewhere in-between. 
These are moderate priced restaurants such as TGI Friday’s or
Chili’s.  This is a convenient place to
stop for a hamburger or a salad.  Typical
visits would be a couple of times a month.

A
larger project needs a healthy mixture of these three general categories.  In an enclosed regional mall, the destination
restaurants would face the exterior and be accessible at later dining hours
when the main mall would be slack in activity. 
The casual theme restaurants can be spread out throughout such a
project.  Shoppers would have the
opportunity to stop during their shopping journey to have a meal and restore
their energy.

A
Food Court can be a world into itself. 
The vast majority of shoppers will visit a food court, and THEN decide
which of the vendors will be their selection of the day. This is known as the “Restaurant Row” effect.  Restaurant Rows
became popular in California in the 1970’s. 
A large number of popular restaurants were aggregated together.  Diners would typically go to the area and
subsequently decide where to eat.

Modern
Food Courts started in shopping centers such a Sherway Gardens and Bramelea
Square around Toronto Canada in the mid 1970’s, then migrated to the United
States.  A number of successful examples
now can be found in the Gulf States.

Food
Courts benefit from certain economies of scale. 
While one unit may have strong breakfast traffic, another sandwich
operation may peak at lunch while a third operation may be strongest at
dinner.  Each of these, with different
peak hours of operation, will use the same common dining seats; but just use
them at different hours.  Such
efficiencies accrue to the benefit of all the operators in a food court.

Hotels
in the Gulf States have strong food service representation.  The Las Vegas Hilton was once the largest
hotel in the world.  It boasted 3,500
rooms.  That hotel needed a number of
restaurants to serve the needs of the resident population.  Those facilities range from a coffee bar to a
steakhouse to a diner style operation to a Benihana to two showrooms for a
total of 11 food service operations.  The
showrooms would serve from 1,000 – 2,500 patrons for dinner and a Broadway
style show.

The
Dubai Marriott Hotel has but 10% as many rooms, a mere 350 keys.  However that hotel also boasts 11 food service
operations.  It’s not Las Vegas, but it
is a collection of food service operations, appropriate for the market, and
serving not only the residents of the hotel, but the influx of patrons form
other hotels or from the indigenous population.

Restaurant
leasing comes down to finding Cinderella’s slipper.  Know your market, and deliver what is
appropriate for that customer and that retail or hospitality environment.

Paul Fetscher, president of Great American Brokerage in New
York was the consultant in the restaurant merchandising for Dubai Festival
City.  He has worked on project from
Thailand to Alaska and from London and Paris to Shanghai and Beijing.  Needless to say, he has worked on projects
throughout the United States.

He will be teaching a course in Restaurant Leasing for the
Mid East Council of Shopping Centers on May 3rd in Dubai.


NY Deal Making 2018