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Has the Restaurant Industry Bitten Off More than it Can Chew?

SoCal Restaurant Trends: Resurgence keeps vacancies below 4% and lease rate growth up

San Diego County CA— A new report by CBRE Research on the restaurant industry and its impact on the Southern California market has found strong employment and increased tourism propelled the region forward. The restaurant resurgence in Southern California kept restaurant and fast food vacancy below 4 percent and asking lease rates growth at an annual average of 4 percent for the last five years.

America is a food nation, which created a hot market for restaurateurs and resulted in a prominent increase in dining options over the last few years. In nearly every market, the fast casual sector dominated the growth trend, providing consumers with a bevy of food options. Premier locations for leading concepts acted as major draw and remained successful because of high consumer needs.

Although Americans are eating better than ever before, economic shifts point toward the start of a slowdown. In addition to customer demand for quality options at low prices, the rising employment costs, rent increases, and a glut of similar restaurant concepts are shrinking profit margins. Per Figure 1, national restaurant performance is trending below previous projections.

Figure 1: National Restaurant Performance Index

Source: National Restaurant Association, 2017 ** Index data compiled using same-store sales, employees, capital expenditures and business conditions. Indexes above 100 indicate expansion, under 100 indicate contraction

 

Strong employment and increased tourism propelled the region forward. The restaurant resurgence in Southern California market kept restaurant and fast food vacancy below 4.0% and asking lease rates growth at an annual average of 4.0% for the last five years.

Figure 2: SoCal Restaurant Lease Rates vs. Vacancy

Source: Costar, Q4 2016

 

Southern California remains a top destination for the nation’s leading food concepts, which further tightens vacancy and drives up asking and effective lease rates. Leading restaurant economists predict an inevitable slowdown, however, which should caution restaurant owners and real estate professionals to be more strategic when selecting retail space for new and expanding tenants.

Figure 3: Restaurant Statistics by Market

To learn more, visit the CBRE Global Research Gateway [here]