Open restaurant spaces find new life

The recession has been tough on restaurants -- particularly at the high end -- as consumers dine out less and spend less money when they do dine out. A silver lining, though, is that some coveted spaces are opening up and rental rates are coming down as competitors close and landlords look to fill vacancies. The good news is a business may find a good price for rent, but the downside is it might have trouble filling tables.

Taco Mac now has six of its 28 metro Atlanta locations in remodeled spaces that previously housed other businesses. Atlanta-based Canyons Burger Co. opened its second outlet early last year in the former home of a burrito restaurant in a Brookhaven shopping center.

And later this month, Concentrics Restaurants, the owners of Parish, One Midtown and Two Urban Licks, will open Bakeshop in the former home of Gold Star Bakery & Café in Midtown.

Locations in prime spots, such as Buckhead's main retail center, are still rare to find at drastically reduced rates, said Harold Shumacher, president of the Shumacher Group, an Atlanta restaurant real estate brokerage firm.

Developers resist lowering rates too much because a slightly lower monthly rent can add up over the life of a long-term lease, he said.

Some spaces a notch or two below prime are opening up at reasonable rates, Shumacher said. In recent months, a more rational mind-set also seems to be taking hold, he said.

A year ago, Shumacher said he saw mostly “tire-kickers” looking for cut-rate lease deals on restaurant space.

“I think since the spring there has been more focused activity,” Shumacher said. “I believe we now have people committed to trying to make deals.”

Taco Mac is starting to see more activity and attractive deals, Campbell said. "I've gotten more calls in the past six months than we ever have on available restaurant space," he said.

Expansion, though, is taking place more slowly because financing is more difficult to get, Campbell said. A few years ago, banks would often loan money based on a preliminary estimate of what the restaurant would need, he said.

“Now, they’re looking at everything from A to Z,” he said. “They want to know the day we get delivery of the fryer… We’re still getting funding but not as aggressively as we used to.”

Canyons Burger, which has locations in Woodstock and Brookhaven, hopes the market gives it a chance to expand at good lease terms and lower build-out costs.

Compared to a year or two ago, Canyons is finding rates about 20 percent to 25 percent lower and landlords that are willing to provide more money for tenant improvement, said Nick Binnings, Canyons co-founder and chief operating officer.

Canyons also hopes to save money by moving into the spaces of former restaurants, Binnings said. These restaurants often leave equipment, heating and cooling systems, bathrooms and kitchen space that can be reused, cutting the initial investment by a third or more, he said.

These spaces come with risks, Binnings said. The equipment might be faulty and the location could be in a bad market, he said.

“I think the biggest hidden gem is the conversions, if you can find the right one,” Binnings said.

Even with the open spaces and lower rates, though, not everyone is jumping at opportunities. The rental rate for Bakeshop, opening along Peachtree Street, is about 20 percent to 25 percent lower than it would have been before the recession, estimates Concentrics Founder and Managing Partner Bob Amick.

But Concentrics isn’t actively looking for other spaces, Amick said. Bakeshop will give Concentrics 12 restaurants in Atlanta, three in Chicago and one in Florida.

“Why would I go out in this market in this economy and compete against myself anymore?" Amick asked. "It doesn’t make sense.”

Concentrics primarily has expanded in the past year through management agreements to operate restaurants for hoteliers or developers, as was the case with 30 Tables and 11 Stories in downtown Atlanta’s Glenn Hotel.

Concentrics is working on more of those deals, Amick said. When it comes to leasing space, it’s a “waiting game,” he said.

“2010 may be an improvement over 2009 and 2008,” Amick said. “But the reality is if it’s an improvement, it’s going to be a minor improvement. We’re not going to just wake up and be in a different place.”