What is a fair Restaurant rent?
Posted, July 12th, 2021
What is a fair restaurant rent is a question that I get asked on a regular basis. In summary, the short answer is?it depends.
Generally, a figure between 8 to 12% of turnover is regarded as a fair rental.
Why does restaurant rent matter?
There are many factors to consider when shopping for a restaurant space. The rent is a significant consideration in the decision since the cost of renting the area will take up a considerable portion of one’s budget. So if you’re planning on opening a new business at new premises, how do you figure out what your best option would be?
What is fair market rent for the area?
The best way to do this is to see how the rent compares with other surrounding commercial retail of similar position, condition and size. For example, a hairdresser pays the same rent for a similarly sized area but has a much lower turnover. How much do competing restaurants charge for rent? Would you prefer to pay more or less than that amount?
Costs of operation:
This relates to all the costs associated, including staff costs (both paid and unpaid), insurance costs etc. It should also factor in your ability to pay these over time into the cost of running the business.
Is it worth paying the asking rental for that location?
Rent prices are constantly in flux, but you can use a few factors to help determine what a reasonable price for a restaurant is. To start, look at the cost of living and average pay for an area. If the cost of living is high and wages are low, restaurant prices will need to be increased to make up for the discrepancy. Additionally, take a look at how the industry is doing.
Rents can be challenging to understand, but they are essential for any business, including restaurants.
If you are starting a restaurant, understanding rent can be difficult. You need to know how determined a reasonable rent is for your location and what it may cost you long-term. Rent is an essential investment for any business owner because it can have a big impact on the success of their business.
What Rents are Restaurants & Cafes paying?
In a recent survey by Restaurant and Catering Australia conducted on their members, the average rental was around 8-12 % of turnover. This compares with a figure of 6.5% from the survey conducted on restaurants and coffee shops around 3 – 4 years ago.
In summary, I have found that this percentage varies dramatically in many restaurants and coffee shops that I have seen over the last 6 to 7 years. From as low as 5% to a high of around 20% of turnover.
Additionally, the actual rent is determined by retail market value in that area. Whether it be a restaurant, cafe, hairdresser, shoe shop or gift shop. The landlords objective is to achieve the highest possible rent for the particular retail area.
How to determine a reasonable restaurant rent?
The bottom line is to make sure when looking to buy a restaurant or cafe is to ensure that the rental is;
A. Within the industry averages to ensure a consistent level of profit.
B. A fair market rent for the area. The best way to do this is to see how the rent compares with other surrounding commercial retail of similar position, condition and size. For example, a hairdresser pays the same rent for a similarly sized area but has a much lower turnover.
Otherwise, you will have to be very confident of increasing the business turnover high enough to fall within the industry averages or better.
We will cover rent and leases in future blogs.
Feel free to contact Con Tastzidis on 02 9882 2221 if you would like a free rental appraisal.