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You are starting to imagine every aspect of the new restaurant you are about to open, the satisfied customers, the busy tables and the waiters buzzing round ensuring everything is perfect. You can visualize the space, where the kitchen is in relation to the dining area, where you’re going to greet the multitude of guests and how the menu is going to get them coming back again and again. But prior to thinking about all the operating details of your restaurant, the most important decision that you will make in regards to success or failure of your concept will be the site you chose.
How can you be sure you’re not paying too much? Do you fully understand Common Area Expense charges (CAM) and rent increases? What is your total financial liability for the space? Is it easily accessible for your potential clientele? Do they even live in the area? What is the demographic make up of the location? There are so many questions that need answered. We are going to try to shine some light on these important discussion points on restaurant site selection that you may or may not have considered.
The location selected will impact on the following:
- Worker availability
- Investment from lending institutions
- Parking availability and accessibility
- The sale of alcohol
- The type of customer
- Construction or remodelling costs
- Local ordinances, state and federal laws
- Rent, taxes, insurance, and other business expenses
AND, most importantly,
- Your ability to survive and succeed
Lease. Start-up businesses rarely want to sign long term leases. While understandably wanting to limit downside risk, if you don’t enter in to a multi-year lease and you are successful, the Landlord will gain leverage on the negotiations going forward. Be careful of landlords that ask for rent and a percentage of your profits. While this can be an attractive option for starting out, the terms can also be more expensive in the long term.
Do you fully understand what the excess charges are in the lease (CAM)? Are the center’s CAM charges in line with the others in the area? Are there built in profit centers in theCAM? CAMshould be a pass through expense, but it is not uncommon to see landlords pad this number with excess fees and potentially transfer non-operating expenses through to the tenant.
Zoning Restrictions. The local zoning and planning board will provide information on whether the site can even accommodate a restaurant.
The shape of your lot or building. Can people drive in and out easily? Does the shape obstruct visibility from the street? Will the garbage man have trouble emptying your dumpster?
Consider how many seats you can fit in your restaurant. Does the building face directly in to the sun?
The sale of alcohol. Unless you definitely will not be selling alcohol, you must be sure you can obtain an alcohol license for your restaurant.
Utilities. Do you have enough power? A painful lesson would be to find out after you legally commit to a lease that there is not enough to handle the electrical load. This is an important and often confusing area. It frequently requires that you seek the advice of an architect or engineer to look in to the situation to ensure the power is adequate for your business. The same goes for the gas, sewer and HVAC system.
In the City Center. If you decide on a location in a downtown area you may have to make some serious building modifications to your HVAC system to ensure you are meeting all necessary regulations. Exhaust vents, precipitators, sewer and grease traps are often not as easy to fit as you may think and can cost far more than you originally budgeted for. Consider your logistics carefully. Will trucks be able to make deliveries without encountering difficulties? What about trash collectors?
Speed of Traffic/Accessibility. Put yourself in your customer’s shoes. Can they enter your site without causing an accident? Are they driving so fast that they can’t see your sign? There is a reason that the national chains favor intersections and areas close to traffic lights. Is there a median separating you from one side of the traffic. This might not be an issue if you are on the right side of the road for your particular concept (i.e. an Einsteins Bagels can be perfectly at ease on the inbound side of morning traffic towards a concentrated work area)
Parking. Always study parking arrangements for your site. It is vital that you have enough spaces to allow for a full restaurant. Depending on the concept, most restaurants sites should not be less than 6 spots per 1000 sq feet. Many restaurants need at least 10 spots per 1000 sq ft.
Previous Ownership. Always investigate what the location was before. Did it go out of business? If so, why? What do the neighbors have to say about it? What suggestions can they give you as to how to improve it? Can you speak to the old tenants?
Visibility. If potential customers are unable to see your site clearly, this is a serious problem. Where possible, you want your building to be visible from both sides of the street. There are laws as to what signs you can use, so make sure they do not violate billboard ordinance.
If you have decided on a site in a shopping centre, give serious consideration to end locations over mid strip locations and a corner lot (if out on the street) is always preferable to a middle-of-the block site.
Signage. Front facade signing that can be seen from at least 100 to 200 feet away is essential.
Interior design flexibility. Even if an attractive location is a peculiar shape, it does not mean you have to reject it before conducting further review. It is prudent to think about how best to utilize space, interior ergonomics and what sections of the location are best for which job. It can actually help if you plan to expand at any point. A particular room may not be especially useful to begin with, but further down the road in business it could be.
Accessibility. All accesses within your building, be it the restaurant area, emergency exits or the parking lot, should be easy to get in and out of. Look out for sections that could be problematic. Try to think of it from a car and pedestrian standpoint. Is there anything that could seriously affect your trade? Construction works, high speed traffic or awkward intersections are all things to be concerned about.
Remember that the Americans with Disabilities Act (ADA) requires businesses to provide ramps for handrails, wheelchairs, handicapped parking spaces and accessible toilets. This is important in order to avoid a visit from the Department of Justice and definitely something you want to discuss with the landlord at time of negotiation and not after the lease has been signed.
Restaurant Density/Clusters. Where are the other restaurants and town? While competition around clusters can be fierce, there is already an established client path. This might mean a shorter period to break even. However, you had better be ready! Do a GAP analysis to see if there is a need for your concept. If there are too many similar concepts, the competition with established kitchens might be too much to overcome.
Location, Location, Location. Seems simple enough. Go to where there are people….LOTS OF THEM!
Demographics. Who is your clientele? Where are they located? Can they afford your food? Will they even LIKE your food type?
-Singles
-Families
-Office personnel
-Retirees
Pull demographic data and make sure it is a fit.
Second Generation Space. There are only two ways to obtain a new site. One is to occupy an existing structure (second generation). The other is to build from the ground up. Understand that even poor concepts can exist for long periods of time in a great location. Second generation spaces are very tempting, because the hood, traps, and permits are already in place. But you need to consider that a second generation might have serious logistics or visibility issues that caused the previous restaurant to leave the location.
Summary. It’s an exciting time to be opening a new restaurant location, but besides the restaurant operations, the location of your restaurant might be the single most important action you take in regards to the success or failure of your new concept. Many exceptional concepts fail to succeed not because they don’t have the right concept, but rather select a location that is not ideal for the concept. Overlooking any slight detail, law or structural defect could be detrimental to your business and your bottom line. While there are many more details that need your attention than what is listed here, hopefully, we have provided you with some things to think about with your search. Best of luck!
EO: Good afternoon and welcome to today’s Market Minute. I’m Eric Odum, principal Real Estate Broker for Net Lease Commercial Advisory. Today we have Ken Evans with us. Ken is a friend of mine now, but we originally met three years ago. Ken came to us for office space and it was the first time I had worked with somebody in his industry. Ken has been in technology for 30 years and his expertise lies in technology development and product development (software). He’s from New York originally, he has worked in Atlanta, he was part of the big Seattle Tech scene, and now he’s in Tampa. Ken was one of the first people to bring the ‘co-working‘ concept to the Tampa Bay area and that’s what we’re going to talk about today. So, welcome Ken, appreciate your time with us.
EO: So, you originally came to Net Lease to talk about office space and I was unaware of the issues affecting the Tech industry at the time and how technology companies were dealing with office space. I think the truth is, today, the biggest issue is that landlords do notknow how to adapt to the tech industry because they have very distinctive needs, don’t they?
KE: They do, and any small business has distinctive needs but by the very fact that technology companies are volatile, they also experience very high growth. When they catch on, they grow substantially in size. They have little need for distribution, warehousing, and manufacturing but in so far as staffing, they must expand very quickly when things do catch on. So with regards traditional office space as we know it, and projecting how big the tech company is going to be in the next few years, that scenario really doesn’t apply in the technology industry. Most of the time in the tech industry, people get together and you find a number of companies under 0ne roof until one of them spins out, which is one of the benefits of co-working. People work together in an office environment, the idea catches and the company and founders spin out and do their own thing.
EO: So if I understand correctly, essentially what happens is; you have an individual, he has an idea, the guy in the garage, the Steve Jobs type, and he graduates. He/she graduates and then they collaborate with other people. They then go the next step and go from maybe two or three people in a small office space, to 20 people working for them in year two and to 100 people working for them in year three.
KE: It can go that way, those cases are unusual – not everyone is going to be a Google or a Facebook, but they do grow very quickly when things catch on because the market takes over. If you don’t keep up with market demand, your competition will step in and take that share, so you do have to grow very quickly. Generally nowadays, tech companies start virtually, especially in the last couple of years, because it means you don’t have to invest in infrastructure, practically everything you need is available virtually and on line, as in on “The Cloud”. So all you really need is people. Most of the time it starts with people working remotely in their garage or in their living room.
EO: And those are people who can’t afford to sign a three year lease, right? It’s just impossible.
KE: No, they can’t and they don’t need to. You don’t want the fixed costs when you’re starting a new business. I’ve done a number of workshops and a lot of work with emerging tech companies and that’s the one thing you want to avoid – a lease and office space is a fixed cost. What you need to be doing is plowing any capital you have, whether it’s maxing out your credit cards or spending a little bit of seed capital from an investor, into the development of your product and your customer.
EO: So let’s talk a little bit about co-working because you originally introduced me to the idea. Tell me about what stage co-working is typically suited to the company development process.
KE: We see it for all stages of the development process. We were actually doing co-working when I came to you three years ago. We were doing co-working on an ad hoc basis in coffee shops where we would get together for a mini workshop or session, and people could come and discuss what challenges they had, what they were working on and ask for help from other people in the tech community. Co-working appeals to a broad range of people, from the individual that’s working on the idea, to the person that is actually growing the business. This doesn’t necessarily mean that a business owner is adding staff because people don’t add staff like they used to. They’re not adding full time employees; for example W-2 employees. They are adding 1099 freelancers because they have project based work. They are designing new web products, doing graphic design work, or web programming so they d0n’t need a full time hire. So, again, avoiding the fixed cost is a key component.
EO: Let’s back up a bit here and define co-working. If you’re a landlord and you’re listening to this, how would you explain co-working to them?
KE: Co-working is an office space where people can get together and use a desk for a day. That is probably the best way to describe it. Co-working started out in New York and the Bay Area at pretty much the same time….
KE: …yes, and a creative agency, a marketing agency, or ad agency would have extra space and would work with a lot of freelancers and web developers, and they would rent them a desk. This would cover the cost of that desk, allow someone to come in and use the facility, and that agency could use their capabilities and work side by side with other people working on similar projects. That creation of critical mass, the gathering of people all doing similar things, creates a creative spark for people to work together and it’s better than working alone. Sitting at home on your couch with your cat doesn’t really do much for the creative process.
KE: It happens at Panera around the country and at Starbucks, but those businesses have pulled back on catering for people that are keeping a seat for hours on end. Starbucks and Panera have closed off their Wi-Fi accesses during lunch – they are really trying to push people through and get traffic, so those coffee shops are not as friendly as they used to be. So people are moving to other locations where they can get together, which is why co-working has cropped up in a number of different areas. Its been very popular in dense urban areas like New York and San Francisco, but really it’s happening all around the world.
EO: Well what was interesting to me was the first time you introduced me to co-working, I said “that’s not going to work – it’s not viable” (for the landlord), but then my phone started ringing and everybody was asking for spaces to ‘co-work’. There were so many unemployed people, and people that had been laid off. They were all trying to get back to work instead of hanging around in their pajamas all day. And the vast majority were advertising people, marketing people, attorneys, tech people, it was amazing! You also had the landlords in the Tampa area, accustomed to getting $23/sq. ft on their space; and all of a sudden you had all these displaced workers and suddenly there’s a disconnect because the workers were let go and vacancy is increasing. The workers are still present….. Just not with the same company. You have to figure out a way to get them back into your space. Why don’t you talk about that a little bit? If you’re a landlord, how do you handle all these 1099 workers?
KE: The way you handle the displaced worker is, if there’s a migration – and this doesn’t apply to people looking for jobs, or people out of work – but those that have made a shift from being a W-2 worker to being a 1099 (a freelancer), when they’ve made that shift, they will need a work space, but they’re not going to step up to a lease because of the financial commitment. If a landlord can only provide a space of 5000/ sq.ft or more, it’s completely impractical for the small business owner. In fact it’s no longer practical for the Tampa Bay Area, because we don’t really have employers of that size any more (moving to the area), so it’s just not practical for a workforce that has moved from predominantly being W-2’s to being 1099’s. Freelancers are going to want very flexible terms; and flexible office space. Co-working is one of the things you can do to achieve that, Executive Suites is another, and then there’s a middle ground between executive suites, which costs $800 to $1,000 per month, and an office space with open areas, so essentially, the work force is driving a new type of office adoption. So it’s really not about the landlords adjusting to the number of people, but rather to new businesses, the solo entrepreneurs/two person shops that don’t require a traditional lease.
EO: It’s interesting you bring this up, I think it’s something that really should have started happening in 2000. It’s not an issue of a bad economy, it goes much deeper than that. Technology now allows people to work from home or out of the traditional office environment, and to say “Ok, I don’t need employees in my office 24/7/365.” I can use a freelancer and communicate with them just as effectively. So there is definitely a changing work force and technology has allowed that to happen (with Skype, email, etc.). So it really comes down to one issue [from a landlord's perspective] – they need to figure out how to adapt to this change. It’s not going to go back to the way it was in 1985.
KE: That’s right. And this has been coming for a long time. In 1994 Compaq got rid of a lot of their sales force and said ‘you go work from home, you should be outbound x number of days per week.’ So they got all their sales people together and said ‘we’re going to build you home offices, and we expect you to be on the road.’ A couple years after that, IBM followed suit, they did what was called “Hoteling.” They had an office where people could have a desk for a day, but the sales team didn’t need to go in to the office every day, so IBM offices shrunk dramatically. That was then followed by the ‘telecommuting‘ idea in the commercial sector. I think the Government is trying to encourage this practice – it has done a significant number of studies and put programs in place for their employees to telecommute. They don’t want people in the office and they don’t want people on the roads.
EO: You see law firms here too…
KE: Absolutely.
EO: …where associates are sharing office space and the lawyers only go in when they need to meet with a client. At Net Lease, I get those types of requests all the time. It’s really remarkable seeing the pressure on the downtown Tampa market because these law firms have shrunk in terms of space requirement. Law firms used to be enormous consumers of space because of the paper work they had to store and the amount of associates they had to accommodate. They are now finding ways to economize. So it’s even happening in law firms as well. The Tech industry has always been a little bit more on the edge, but you’re seeing the more traditional types of business follow suit.
KE: The footprint has shrunk across all industries. Tech has done it, law offices, accounting offices, they’ve all done it; they just don’t need to have a lease or a formal office. You can start in your living room. At some point you’re going to want to work with other people and that’s where co-working and executive office suites come in. Tech companies are not going to consume the same amount of office space they traditionally did.
EO: We are actually sitting in a co-working space today. Do you want to talk about that a little bit?
KE: We are sitting in Tampa’s newest co-working space, a space started by Tampa Web Ventures, or Tampa Bay WaVE. They have approximately 40 small tech companies that are all members of this organization. It’s a peer group, a support group of people that are all building web ventures together. They meet on a monthly basis and support each other and share ideas, war stories and their advice on how to do certain things. They were able find a landlord willing to give them some space to take their companies to the next level. So as part of that, there would have been some co-working involved. The organization is not just made up of companies, there are individuals as well: web designers, web developers, freelancers etc., that will be using this space to come in, rent a desk for a day, sit on a couch to enjoy free Wi-Fi and some coffee and just add to the critical mass that this type of space caters for, without having to go to a Panera or somewhere like that. And it’s not just about a place to sit, it’s about sharing ideas and collaborating and, as we’ve seen with co-working, a lot of good ideas, products and companies have spawned from that creative critical mass.
EO: So essentially, just to summarize, for those landlords out there wondering what to do with their space, not every space is going to be ideally suited for co-working, but co-working definitely suits that type of creative 1099 individual that needs to collaborate with somebody. It could be a win-win situation for both landlords and the individual entrepreneur alike. So if I’m hearing you properly, that’s the direction things are headed in.
KE: Well the market has adjusted down, so really, if the market is a lot of solo entrepreneurs, whether they are tech employees or attorneys, the market has shifted regardless. This has happened across the country and around the world. It has certainly happened in Tampa, where we are heavily dependent on the service industry, tourism, and construction – that market has shifted significantly, so a lot of those people working for big companies, or for medium size companies are very different to solo entrepreneurs because entrepreneurs are not going to be looking for traditional office space, leases, and the traditional footprint. So really my advice to your clients is to adjust down to the market because that is the growth curve going forward.
EO: Ken, appreciate having you today, appreciate your input. I know you’re out there every day trying to help the cause of the entrepreneur and we appreciate your time today.
Address 8206 Citrus Park Dr Property Type FedEx & Verizon – Store Building Sales Date 01/31/2012 Sales Amount $3,500,000 Amount/Sq Ft $531.67 (price includes .29 acres of adjacent parking) Prior Sale Amount $1,750,000 Prior Sales Date 05/11/2007 Exterior Wall Brick Address 15412 N. Dale Mabry Hwy Property Type Sonny’s BBQ – Restaurant Building Sales Date […]
Chicago group’s $4 million bid for Channelside complex rejected Two weeks ago, the Tampa Bay Times reported that at least two well-connected local groups have submitted bids to buy Channelside. Tampa Bay Lightning owner Jeff Vinik has teamed with Andrew Wright, head of Tampa commercial real estate firm Franklin …continue reading Breakfast menus serve up [... […]
Completion of Winn-Dixie and Bi-Lo’s merger means fuelperks program can continue The Hutton Company, representing Family Dollar Stores, secures former Coffee Cup commercial location JP Morgan Chase, Regions bank and Citibank all receive healthy ratings from BauerFinancial as real estate market improves and recession subsides With British Airways already on i […]
You are starting to imagine every aspect of the new restaurant you are about to open, the satisfied customers, the busy tables and the waiters buzzing round ensuring everything is perfect. You can visualize the space, where the kitchen is in relation to the dining area, where you’re going to greet the multitude of guests and how […]
Address 401 E Jackson ST Property Type SunTrust -Office Building Sales Date 12/15/2011 Sales Amount $82,500,000 Amount/Sq Ft $140.33 Prior Sale Amount $114,500,000 Prior Sales Date 09/17/07 Exterior Wall Glass Address 7911 W Hillsboroug AVE Property Type McDonald’s -Restaurant Building Sales Date 12/19/2011 Sales Amount $250,000 Amount/Sq Ft $91.47 Prior Sal […]
ULI Tampa Bay Commercial Real Estate Conference, held at A La Carte Event Pavillion, hear of economy that is slow to recover Tampa Bay Lightning, Wilson company and Tampa Tank team up to find real estate for homeless in Hillsborough County Columbia Restaurant and Metro Bay Real Estate win bid to Renovate Tampa Heights’ Waterworks […]
Owners of Belleview Biltmore hope to demolish property and replace with townhouses Retail or Medical office space to be put on Palma Ceia church site Wellcare, HCPCI and ConnectWise help put positive spin on Office Real Estate lease market Lee Roy Selmon’s Restaurant to Fill Space Vacated by Giordano’s Mexican Restaurant Taco Bus looks to […]
Attendees: Eric Odum with Ken Evans, Principal at Evolution Advisors Date: January 9, 2012 Subject: The Market Minute EO: Good afternoon and welcome to today’s Market Minute. I’m Eric Odum, principal Real Estate Broker for Net Lease Commercial Advisory. Today we have Ken Evans with us. Ken is a friend of mine now, but we […]
Purchase of Schalamar Creek Golf and Country Club the largest Commercial Real Estate transaction of 2011 Retail Real Estate showing signs of improvement according to LandQWest and Franklin Real Estate services Office Real Estate sector worst affected by turbulent market LongHorn Steakhouse, Kohl’s and Dick’s Sporting Goods just some of the new businesses alo […]
Real Estate values move in a continuing economic cycle. Understanding the general principles of the economic cycle is key to successful real estate investing.tampacommercialrealestate.com/real-estate-cycles/ […]
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The broker, Steven Silverman of Tampa Commercial Real Estate, recently located a suitable building for Freedom Scientific. They required a building that ... […]
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Tampa Commercial Real Estate, a commercial real estate brokerage firm negotiated the lease of an Office Warehouse to Freedom Scientific.www.prweb.com/releases/.../prweb9454203.htm […]
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