Interview with retail broker bill miller
Miller Walker Retail principal Bill Miller also sees concessions rising from the $100/SF range to as much as $200/SF, but he said this is still a fraction of the cost of some build-outs. Typical restaurants spend $400/SF to $600/SF on creating their interiors, while larger companies like Joe’s Stone Crab and Clyde’s can spend as much as $1K/SF.
Smart restaurateurs understand that saving a fraction of their build-out costs is not going to help a restaurant succeed long term if it does not have an appealing concept and location, Miller said.
“Tenant improvements sound sexy, but if you don’t do sales it doesn’t matter at all,” Miller said. “If you’re a really sharp operator, you know $100/SF in TI doesn’t matter as much as a great location … No amount of TI is going to cover a site that doesn’t do the sales, you’re still going to be going out of business.”
Kazaba said she has worked with restaurateurs who have turned down deals with $200/SF of tenant improvements because they didn’t like their chances of succeeding in the space.
“Just because they’re getting that offer, it doesn’t mean we’re saying yes to the deal,” Kazaba said. “When it’s not a good restaurant space to begin with and you have a landlord giving significant TI, the answer isn’t always ‘yes, let’s move forward,’ because it is about location and concept.”
But not all restaurateurs are smart, Miller said, and some restaurant groups can be enticed by the cost savings into opening more locations than they can handle. “A number of restaurant groups have gotten overly ambitious,” Miller said. “Guys who are less experienced might be like a moth to a flame and say, ‘I’m getting such a good deal, I might as well do three,’ but they don’t realize the manpower and complexity is going to put them in a tight position … If you open too many, you shoot yourself in the foot.”
Miller also said he is seeing mistakes on the part of developers who are building too much retail into projects in areas without enough demand…