In a matter of weeks one of the most common and pleasant activities we have enjoyed for decades came to a screeching halt. The Coronavirus has devastated the restaurant industry in a way that none of us anticipated. Businesses have closed, curtailing their income streams and employment. Restaurants have contracted with their lenders and landlords based on an economic model that will likely no longer exist. And we as diners have been deprived of a fundamental activity of our daily lives.
My report from the field as a commercial real estate professional who talks to restaurant owners looking for space is that the future format of restaurants and dining out may change drastically in our near future. I have identified a few themes that are resonating in my conversations with restauranteurs on the future state of the industry.
Dine-In Restaurant Design and Operation
If a restaurant had the opportunity to design a new facility from scratch in a post-COVID 19 world, what characteristics would it choose? For example, every restaurant will likely want a drive-through window or more sophisticated pickup portal.
A sit-down restaurant might look very different from what we know. We may have our body temperature taken as we enter a restaurant. Admittance, however, will likely be monitored by a staff person with a counter, limiting the number of patrons even allowed in the building. If we are to wait outside, we may be asked to wait in our cars or in specially separated spots.
Continued social distancing will likely mean that restaurants will have far fewer places to sit, fewer tables, more designated aisles and traffic patterns, and barriers between guests. With this reality, will restaurants grow in square footage to accommodate more diners with more space between them?
Reservations may become more important, even at establishments that have not required them before. Restaurants may have a stated capacity of patrons and gone will be the rush of a busy and lively bar full of diners awaiting tables.
Near the entrance to our favorite restaurant, we may see posted health notices. These placards could include a statement that the restaurant staff has been specially trained in sanitation, perhaps even certified as such, and that the restaurant disclaims responsibility for any sickness that may occur to a dining patron. Restaurants will clearly do all they can to protect their guests, but they will want no responsibility for any sickness that may occur from staff or guests. Diners will have to assume some risk when dining.
New protocols of food delivery, storage, preparation, service, cleaning and disposal will all be required, all designed to contain germs and protect diner and staff health. There may be increased heating, ventilation and air conditioning requirements to protect people. We as patrons will actually demand these protocols and changes, we will want to see the certifications, we will want the inspections, and we will want the cleanliness.
The Future of Restaurants
So, what does this mean for the restaurant industry that has employed 15.6 million people in the United States and was predicted to generate nearly $900 billion in sales this year? No one knows the full impact COVID-19 will have on dining out. The economics of restaurant operation have always been delicate but for the most successful and robust establishments and national chains. Restaurants operate on thin margins indeed and are typically not well capitalized. Success comes from volume and execution. With fewer diners, will restaurants be able to sustain their business models?
Restaurants have contracted with their lenders and landlords based on an economic model that will likely no longer exist. Restaurants rent by the square foot now. Will restaurants now have to move to another economic bargain like rent per restaurant seat or only percentage rent? If every restaurant is destined for lower occupancy and production can any incumbent loan or lease continue to work? What solutions will the market develop to allow restaurants to operate and succeed, and continue to be the great attractions of nearly every commercial property experience? In this rapidly changing market, only real estate professionals who are constantly active in the market can work with restauranteurs to find the best solutions for each business.
We have sacrificed dining out to cook meals at home for health and safety reasons, but at some point people will cry for the dining experience that is such an important part of our lives. The basis of the economic model of restaurants is dashed and we will have to form a new model that can work. This will be the painful end for many restaurants and a challenge for us all to restore this critical industry. Unprecedented flexibility will be required. This task poses a monumental challenge for us all, so that we can soon dine happily again and create a new reality of restaurants.
The above is a guest post by D. Scott McLain, CCIM of Coldwell Banker Commercial McLain Real Estate in Huntsville, Alabama
Coldwell Bankers Commercial, Agents are available to help you navigate commercial real estate within Billings, MT.