How COVID Changed Restaurants’ Approach to Real Estate

The post-COVID market

For restaurants that performed well—and even managed to grow—during COVID, the path forward is clearer. Agave & Rye, a Midwest-based NextGen Casual that plans to open 10 units this year, isn’t shrinking its stores. If anything, it’s going after larger spaces to accommodate more on-site activities like pickle ball and arcade games.

The original store in Covington, Kentucky, was a mere 2,500 square feet and regularly had two-hour wait times. Footprints have since increased and even reached 7,100 at a Cincinnati location that opened in September 2020. Its forthcoming  Columbus, Ohio, location (slated to open in February) will be 7,600.

The brand has reason to feel confident in sizing up. Tripling the footprint has done little to curb the bustle.

“We typically have a wait every evening, and on the weekends, it will be a couple hours wait at all of our locations,” says Agave & Rye founder and CEO Yavonne Sarber. “So we gradually upped the space, but we found it didn’t matter how big we were—we were still on a two-hour wait.”

Even when the pandemic was at its worst and guests couldn’t play group sports or arcade games, the brand still turned a profit. Sarber credits this to Agave & Rye’s quality fare, which applies traditional French culinary techniques to a crowd-pleasing carrier: tacos. For Sarber, the business’s consistency through a tumultuous period signalled a greenlight for future prospects.

“For us, when the pandemic happened, we really did get put in a position where [we decided], ‘OK, this is the time we’re going to take to get better and what do we need to do?’ Our growth through the pandemic has allowed us to make these other opportunities work,” she says.

In the past, the now 10-unit brand expanded primarily through second-generation spaces that it could retrofit. Sarber says this strategy allowed Agave & Rye to self-fund and expand at a faster rate. But now that it’s gained some brand recognition, more opportunities are cropping up. It even has two new builds in the works, one in Indianapolis and the other in Hamilton, Ohio, a suburb north of Cincinnati.

Sarber hasn’t encountered a surge in the number of vacancies since the pandemic began. But rather than take this as a challenge, she views it as a clean bill of health for the Midwestern and Southern regions it’s targeting.

“We anticipated having a lot more vacancies in the second-generation restaurants, but within the states that we’re in so far, they’ve actually been difficult to find,” Sarber says. “I look at it as ‘thank goodness.’ It shows that at least in the areas we’re in so far—Ohio, Kentucky, Tennessee, Alabama, Indiana—we haven’t seen the massive closures that some other communities in the country have experienced.”

It’s also possible that Agave & Rye has come across fewer empty spaces because of the brand’s own high standards. It homes in on Class-A sites, which are generally in newer, mixed-use properties that feature a combination of commercial and residential buildings with high-income tenants.

As an example, Sarber points to the Chattanooga store, which she anticipates will overtake the Huntsville, Alabama, location as the top-performing store. She has good reason for this prognostication; the newly opened property is across the street from the Tennessee Aquarium in the city’s Riverfront District. The forthcoming Hamilton location will also be well-situated near the newly opened Spooky Nook Sports Complex, which has been cited as the largest indoor sports complex in North America.

Although Sarber hasn’t observed an uptick in available spaces, it’s a very different situation for David Birzon, CEO of Snooze an A.m. Eatery. Based in Denver, the chain’s footprint runs from coast to coast, though none of its locations overlap with Agave & Rye. From Birzon’s vantage point, the market has been flooded with available real estate.

“I think we’re going through this unprecedented time of growth in our industry that we probably haven’t seen since the early 2000s. Competition for space right now is unlike anything I’ve seen before. Even restaurant chains that haven’t necessarily been growing the last few years are getting back into some growth,” he says.

What helps Snooze ride the real estate swell is its ability to fit in a variety of modalities, Birzon adds. Restaurants that follow rigid guidelines might not be able to seize as many opportunities.

“We work everywhere. We’ve opened on college campuses. We have urban locations. We have what I would call ‘deep’ suburban locations. We work in uptown areas. We work in areas that have limited to no parking,” Birzon says. “We can typically be competitive in spaces that other people might not consider. … You’ll never see a Cheesecake Factory in anything but a [Class] A shopping center. We can take a B location in an A trade area and be just fine because brunch activates as somewhat of a destination for people.”

As an industry vet, Birzon has watched the evolution of what is considered prime real estate for restaurants. From the mid-1980s through the ’90s, malls were the place to be. In the early 2000s, these gave way to lifestyle centers that expanded vertically—think apartments, hotels, and offices with restaurants and retailers on the ground floor.

Sometimes, Birzon says, it can work against Snooze to be in retail-driven shopping centers where the majority of foot traffic comes in the afternoons and evenings, but Snooze opens at 6:30 a.m. and closes by 2:30 p.m.

Other commercial areas, however, can be a boon to the breakfast concept, which recently hit the 50-unit mark. Birzon says the brand has many sites that are anchored by a Whole Foods, Trader Joe’s, and other daily-use retailers, like nail salons, dry cleaners, and banks, that also bring in morning business. And for landlords with fewer early-in-the-day destinations, Snooze can provide a complementary business.

“We kind of refer to ourselves as the ‘a.m. anchor,’ meaning we can bring some activation and energy to their shopping centers in the early morning and by doing that, then they’re able to go out and get other morning-centric businesses,” Birzon says.