Has Southwest Florida hit the saturation point for restaurants?

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Posted on February 5, 2018
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By Frank Kupiec

As is typical for Southwest Florida, restaurants come and go in a flurry. Exciting announcements of new venues coming soon bloom every summer and fall, followed by the usual spring downturn for those who can’t handle the heat. The ebbs and flows of our market have become commonplace and expected. However, over the past few years, retail rental rates have continued to rise and development has continued at a fever pitch, particularly in smaller strip centers that survive and thrive on the restaurant headliner.

Over the past few years, it appears that more national tenants are entering the Southwest Florida market than in any previous stretch in recent memory. These include national names such as Mellow Mushroom, Newks, Metro Diner, and Caribou Coffee, to name a few. As long as the nationals continue to pay the asking rental rates, developers will continue to build and investors will continue to buy at low cap rates. Obviously, the nationals drive the boat, and with their good credit and high exposure, properties with these key tenants will continue to trade at high values.

New brands continue to come into the market; however, the pace seems to have slowed over the past 12 months. In Collier, there were 958 total restaurants at the end of 2017, an increase of 0.85% from the previous year. However, that number was down from an increase of 4.51% from the previous period. The rate of growth was also down in Lee County, but less profound at 2.69% from 3.89%. Occupancy costs are starting to outstrip sales projections, with rental rates coming in on the higher side of the 6% to 10% of sales-range normally associated with restaurant businesses.

What does it all mean? Look for rents to moderate over the next 12 months as competition for top restaurants becomes increasingly fierce. The trend of less new units coming online should also continue in the near term.

Contact me anytime via email or directly at 239.821.2963 for more information on the Southwest Florida commercial real estate and restaurant market.

 

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