The Case for Growing in Developing Areas
Real estate professionals often say the three most important factors in real estate are location, location, and location. This rings true in residential real estate—however, its impact may be even more significant in commercial real estate for certain kinds of businesses. Some companies may have the luxury of interacting with and serving customers online, but a restaurant is tied to its physical location. While there are certainly stories of successful bistros hidden away off the beaten path and cafe's that gain a large following in spite of being in a less than desirable location, the goal should be to find the most optimal location for the money a business has budgeted for rent/the mortgage. In a fully developed area, this may be relatively straightforward. In a location that has more development on the horizon, research may be a little more challenging.
The last thing a business owner wants to do is sign a lease in an "up-and-coming" area for foot traffic/shoppers that turns out to be the opposite. Performing due diligence in choosing a site will improve chances of success. It should be noted that this is not meant to dissuade people from considering developing areas. Many restaurateurs choose to locate in developing areas of their communities. There is solid logic to this approach:
- Choosing a developing area allows a restaurant to grow along with the area.
- Many developing areas are designed with shopping and eating in mind, where workers and residents have expendable income for dining.
- When people move into developing areas, they create new dining habits. This can help build a solid base of customers that may remain loyal for a long period.
- Prime locations usually are developed first in an area, offering choice locations/buildings.
- Developing areas create a certain positive energy/hype that nearby businesses can feed off of.
- There may be fewer “established” eateries in a developing area, offering less competition.
What should an entrepreneur know about a developing area before making a decision to locate a restaurant there? Here are some factors to consider.
Who is the Developing Area Marketing to?
Developers are keyed into the “location, location, location” mantra as well, and they have an idea of the kind of lifestyle their target audience is looking for. A developer will likely have a wealth of information on whom they intend to attract and why. This can be very useful in deciding if a restaurant will be a good “fit” into a developing area. Rather than focusing on demographics, it may be more helpful to focus on psychographics. If a developer's marketing is all about luxury living and enjoying the finer things, that can potentially bode well for fine dining establishments. If marketing skews more toward trendy office space for the professional-on-the-go, there may be an opportunity for a coffee shop or fast casual restaurant.
What Other Businesses are Already There?
Unless a search is taking place very early in the development process, odds are many other businesses have already made a commitment to locate there. Knowing who these businesses are and what they offer can be valuable in making a decision to locate there. This isn't just to see if there will be any potential competition—it will also give an indication of the "type" of businesses a restaurant will be surrounded by. This can be used to see if there is any potential crossover between the target audiences (or employees) of these businesses and the target audience of a restaurant.
What Regulations and Laws will Affect the Restaurant?
There can be a myriad of zoning laws, regulations and guidelines a restaurant will be subject to. Knowing these parameters is important in facilitating a dining experience. Are there any restrictions on outside drinking or dining? Are there business hours that must be met or are they limited to certain times? What are the regulations regarding permanent signage, external lighting and outdoor promotional signage like sandwich boards? Are there any parking restrictions?
What are Future Plans for the Area?
One of the biggest draws to locating in a developing area is the potential for growth. Are there any short or long-term plans for the immediate area that may positively, or negatively affect a business? Will there be any new streets or change in traffic patterns? Any new residential or business developments planned? Are there any new major employers, including medical centers considering the area? This information can often be found on local government websites.
Don't Be Afraid to Negotiate
If a restaurant has a strong concept and appeals to the psychographic a developing area is targeting, it can be an asset for both parties. This can put a restaurant owner in a good position to negotiate terms of the lease. Beyond monthly rent, many other items can be negotiable including utilities, snow removal, signage, employee parking privileges, additional storage space, responsibility for window breakage and even potential barters for gift certificates. Be sure to consider the ramifications of a long-term lease. While there's nothing wrong with a positive attitude, keep lease decisions reasonable and practical, as unreasonable demands may prove to be counterproductive.
Other Benefits of Locating in a Developing Area
Locating a restaurant in a developing area offers a variety of additional benefits that can be often overlooked. A newer brand's recognition may be elevated by the growing popularity of an area. Fellow business owners can create camaraderie and an energy that can benefit everyone in the area. Like-minded businesses can share ideas and develop partnerships.
It all starts with those three keys to choosing real estate; location, location, location. Placing a restaurant in a developing area may just put it square in the path of future growth. Understanding what a development is aiming for and where it is headed can help restaurateurs make informed decisions.
Robert Dekanski is the team leader of The Dekanski Home Selling Team, serving all of New Jersey's residential and commercial real estate needs. He believes education is key when making large financial decisions, and that knowing when to stay the course is just as important as knowing when to take on more risk.