Cafe/Restaurants

hey all. i haven't seen much discussion on these types of property so thought i would ask the question. Has anyone got any experience in buying these types of premises?

What lessons have you learned and what pit falls are there to look out for? what makes a good location aside from foot traffic and access/parking.

just a few items for thought below. I would love to hear what else you are all considering too.

• i presume insurance would be more expensive because of the fire risk
• what considerations need to be given to grease traps?
• how does a resi at the back or on top affect your decision making or the performance of the property?
• is outdoor dining a consideration?
• are there any more specific types of business that are preferred over another?
• thoughts on these properties in the post CV era?
• does a liquor licence make a difference to tenant quality?

 

Surely in the forefront of your mind needs to be COVID and how something similar could play out in the future.

These are businesses that run close to the bone, and as soon as COVID hits, their business suffers considerably.

Also, do you rely heavily on one tenant? I think about the Victoria Police building move and how the old World Trade Building is basically a ghost town, now that Vicpol has left.

Also, the work from home movement has likely not been fully shaken out. What is the city going to look like once things are back to normal? Could WFH actually be something which continue on - even it was a couple of days a week, that will have significant outcomes.

Finally, the liquor licence does not belong to the building, as the licensee gets assessed as part of the process.

 

i suppose the optimist in me is hoping a global pandemic wont be a thing in 2-3 years! re the liquor licence i was more wondering if this makes a tenant more attractive? i don't really think so but thought to put it out there.

i think your point about these businesses operating close to the bone is probably the most pertinent point!

 

Pros
- Food tenants pay higher sqm rates than Other retail (wiped out by incentive however - see below)
- unlikely to be disrupted. People will always want to dine out close to their homes

Cons
- insurance is higher
- grease trap issues & high cleaning costs due to foot traffic etc mean nett leases are critical
- outdoor alfresco is sought after
- incentives are steep 20-25%
- I would absolutely want to see skin in the game for a non-proven operator. You must avoid the situation where you fit out the restaurant for free.
- I wouldn’t bank on them staying more than one lease term. Food businesses get tired and obsolete.

we have employed a strategy in our retail centre where we had five or six f&b operators to juice up the yield but the cap rate of your asset is much better if you can secure a medical/ big box anchor even at a lower rate.

 

It is approved for the location, it's not portable.

 

Thought I'd dig this up. What are peoples thoughts on cafes that service industrial estates? There's one I've come across that has ample parking in front and in the adjacent parking lot that services major tenants. There is however also a McDonald's on site. Anchor tenants include rsea and amart. Bunnings across the road.

 

I was onboard until you mentioned a Maccas (they'd attract most punters) then you've got the tradies been to bunnies & need smoko.

It will need some observation of the visitor patterns. A standalone takeaway usually does well however when faced with a Maccas it would greatly impact footfall.

 

A cafe serving an industrial estate is classically a very small business and a high risk venture. You would want a series of tenants to spread that risk. A good chance that they will just shut shop one day.

 

I think know the one you're talking about, didn't the owners only just take over the buisness?

It's hardly ever busy.

 

The thing I noticed with industrial cafes is that some of the clientele ask for credit and it doesn’t matter if you accept or refuse, either way you lose money or get into arguments or both.

 

Possibly! I've only seen it online and it piqued a few ideas. I think you're right about being recent operators but not sure how much to read into footfall (anywhere) because of covid etc? Sounds like it might be another pass though!

 

I would go for premises that have a wide use not specialised to give you more options when vacant.