How COVID has changed how restaurants approach real estate

The post-COVID market

For restaurants that have performed well — and even managed to grow — during COVID, the path forward is clearer. Agave & Rye, a Midwest-based NextGen Casual that plans to open 10 units this year, isn’t cutting its stores. If anything, he’s looking for bigger spaces to accommodate more on-site activities like pickle ball and arcade games.

The original store in Covington, Ky., was just 2,500 square feet and regularly had two-hour wait times. Footprints have since increased and even reached 7,100 at a Cincinnati location that opened in September 2020. Its next location in Columbus, Ohio (expected to open in February) will be 7,600.

The brand has reason to feel confident in the sizing. Tripling the footprint did little to dampen the unrest.

“We typically have a wait every night, and on weekends there will be a few hours of wait at all of our locations,” says Yavonne Sarber, founder and CEO of Agave & Rye. “So we gradually increased the space, but found that it didn’t matter how big we were – we were still waiting two hours.”

Even when the pandemic was at its height and customers couldn’t play group sports or arcade games, the brand still made a profit. Sarber attributes this to the quality cuisine of Agave & Rye, which applies traditional French culinary techniques to a medium that everyone loves: tacos. For Sarber, the company’s consistency during a tumultuous period gave a green light to prospects for the future.

“For us, when the pandemic happened, we really put ourselves in a position where [we decided], ‘OK, this is how long it will take to get better and what should we do?’ Our growth during the pandemic has allowed us to make those other opportunities work,” she says.

In the past, the brand now made up of 10 units has developed mainly thanks to second-generation spaces that it could develop. Sarber says this strategy has allowed Agave & Rye to be self-financing and grow at a faster rate. But now that he has gained some notoriety, new opportunities arise. It even has two new builds underway, one in Indianapolis and the other in Hamilton, Ohio, a suburb north of Cincinnati.

Sarber has not seen an increase in the number of vacancies since the start of the pandemic. But rather than take that as a challenge, she sees it as a clean bill of health for the Midwest and Southern regions she targets.

“We expected to have a lot more second-generation restaurant vacancies, but in the states we’ve been in so far, they’ve actually been hard to find,” Sarber says. “I take it as a ‘thank goodness.’ It shows that at least in the areas we’ve been in so far – Ohio, Kentucky, Tennessee, Alabama, Indiana – we haven’t seen the massive shutdowns that some other communities across the country have seen.

It’s also possible that Agave & Rye encountered fewer gaps due to the brand’s high standards. It is home to Class A sites, which are typically found in newer mixed-use properties that include a mix of commercial and residential buildings with high-income tenants.

As an example, Sarber cites the Chattanooga store, which it says will overtake the Huntsville, Alabama store as the top performing store. She has good reason for this prognosis; the newly opened property sits across from the Tennessee Aquarium in the city’s waterfront district. Hamilton’s future location will also be conveniently located near the new Spooky Nook Sports Complex, which has been cited as the largest indoor sports complex in North America.

While Sarber hasn’t seen an increase in available space, the situation is quite different for David Birzon, CEO of Snooze an Am Eatery. Based in Denver, the chain’s footprint spans coast-to-coast, though none of its locations overlap with Agave & Rye. From Birzon’s perspective, the market has been flooded with available properties.

“I think we’re going through this period of unprecedented growth in our industry that we probably haven’t seen since the early 2000s. The competition for space right now is unlike anything I’ve seen. Even restaurant chains that haven’t necessarily seen growth in the last few years are finding some growth again,” he says.

What helps Snooze ride the real estate wave is its ability to adapt to a variety of terms, Birzon adds. Restaurants that follow rigid guidelines might not be able to seize as many opportunities.

“We work everywhere. We opened on university campuses. We have city locations. We have what I would call “deep” suburban locations. We work in uptown. We work in areas where parking is limited or non-existent,” says Birzon. “We can generally compete in spaces that other people might not consider. …you will never see a Cheesecake Factory in anything other than a [Class] A mall. We can take location B in commercial area A and be fine because brunch kind of activates as a destination for people.

As an industry veterinarian, Birzon has watched the evolution of what is considered prime restaurant real estate. From the mid-80s to the 90s, malls were the place to be. In the early 2000s, these gave way to lifestyle hubs that grew vertically – think apartments, hotels and offices with restaurants and retailers on the ground floor.

Sometimes, says Birzon, it can work against Snooze being in retail-oriented malls where the majority of foot traffic is in the afternoons and evenings, but Snooze opens at 6:30 a.m. and closes at 2:30 p.m.

Other commercial areas, however, can be a boon to the breakfast concept, which recently hit the 50-unit mark. Birzon says the brand has many sites that are anchored by Whole Foods, Trader Joe’s and other everyday-use retailers, like nail salons, dry cleaners and banks, that also bring business in the morning. And for owners with fewer destinations early in the day, Snooze can provide a complementary activity.

“We kind of call ourselves the ‘anchor point’ which means we can bring activation and energy to their malls early in the morning and by doing so they can then go out and find other Morning centric companies. Birzon says.

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