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Why Pent-Up Demand And A Real Estate Vacuum Will Revive America’s Restaurant Industry

Tag:America restaurant industry covid-19 2021-02-23 13:19

 

Why Pent-Up Demand And A Real Estate Vacuum Will Revive America’s Restaurant Industry

 

As I write this at the end of 2020, the state of America’s restaurant industry has rarely seemed more dire, thanks to the state and city demands that restaurants shut down until the pandemic is defeated. As with all small businesses, making things tougher are the on-again-off-again closures that are difficult enough for a gym or a nail salon but that for restaurants require enormous effort to shut down, not least dealing with the amount of wasted food in storage.

In good times municipal governments make the running of a restaurant far more restrictive than of other businesses, from questionable health department inspections to prohibitions against or expensive permits for outdoor dining. Restaurants play high taxes, justified by local governments as somehow being cash rich and consistently profitable. Liquor licenses cost a small fortune, and blue laws can prevent restaurants from fully utilizing their potential.

Now, with landlords threatening to shutter restaurants—often because they believe they’ll get a far higher rent from a CVS than on a 15-year restaurant lease—old and new restaurants are struggling to stay in place. Many will not survive, even at the top of the ladder. It was announced last week that New York’s famous ‘21’ Club, owned by the Belmond hotel company (which was bought for $3.2 billion by LVMH in December, 2018), would close, hoping it might be re-purposed sometime in the future. Celebrity restaurateurs like Danny Meyer, David Chang and Jean-Georges announced closings last autumn, and Las Vegas’s high-end, high roller restaurants have been decimated.

 

Why Pent-Up Demand And A Real Estate Vacuum Will Revive America’s Restaurant Industry

 

Still, , I believe that the resiliency of restaurant owners and history will show that restaurants will re-bound when the pandemic ebbs. For despite the greed of many landlords, they are well aware that spaces must be filled; realtors abhor a vacuum, and in many cases, spaces built specifically to be restaurants cannot easily be converted into another kind of business. Ironically, the vast three-level space at the bottom of New York’s Seagram Building might have become a Cadillac showroom back in 1959 but instead became The Four Seasons restaurant, which later applied for and received New York City Landmark status, so that its interior cannot be altered in any way, if the current owner of the building ever reopens it. One can hardly imagine restaurants like the Signature Restaurant at the 95thfloor of the Chicago’s John Hancock skyscraper, Picasso in Las Vegas or Per Se in New York’s Time Warner Center being converted into a car dealership or a Lululemon.

 

Why Pent-Up Demand And A Real Estate Vacuum Will Revive America’s Restaurant Industry

 

And in Paris, no one’s going to replace the Jules Verne restaurant on the second floor of the Eiffel Tower with a Verizon store, nor will the grand dining room Man Wah overlooking Hong Kong Harbor with a Ferragamo shoe salon.

Also, savvy realtors not only know that good restaurants in their buildings attract renters and outsiders, but that an award-winning restaurant brings prestige to the property. Indeed, many realtors build out space specifically to install a restaurant with a name chef or restaurant company behind it, like the Ducasse Group or Wolfgang Puck.

For a while in 2021, there will be tectonic shifts in the number and kind of restaurants remaining open or new restaurants taking a chance. Yet the fact is, every Wednesday in the New York Times Food Section, there is a listing of at least six new restaurant openings around the city—more than 300 in a year. It is obvious that many mom-and-pop restaurants will sadly close, but others, especially ethnic eateries, have adapted and found a new market in take-out and home delivery. Many have built outdoor dining spaces, some enclosed for winter, that bring in a valuable number of diners, even if indoors, regulations only allow for occupancy of 25% to 50%.

 

Why Pent-Up Demand And A Real Estate Vacuum Will Revive America’s Restaurant Industry

 

And therein lies the real hope for America’s restaurants: Pass any number of restaurants where outdoor dining has been arranged, and you will undoubtedly find them packed with guests, not to mention those picking up food to take home. True, far too many guests ignore health regulations about wearing masks and a few unscrupulous restaurateurs flout those rules, which has resulted in spreading Covid, but, as vaccinations kick in, that problem should be quickly decreased.

The fact is that people love going out to eat and are dying to do so right now. There is a pent-up demand that will explode onto the restaurant scene by spring and summer at every level. Smaller restaurants, which have gained attention during the pandemic, will be the immediate winners, with old customers flocking to them and new ones delighted to try something new. At the higher levels, where expense accounts drive business both for the restaurant and the hosts of a business lunch or dinner, it will take a while longer to come back, because companies will initially be sheepish about seeming too extravagant. But again, as history shows, even when the allowance of expense deductions for business meals was cut from 100% to 50%, it had almost no effect on entertaining, simply because the cost was such a small part of doing business. (The current battle over a new stimulus package included discussion of new tax breaks for what was characterized by the antiquated term “three martini lunch.”)

And during economic slumps companies that slashed entertainment budgets and compiled lists of expensive restaurants to be avoided, always relented as soon as the economy rebounded. Predictions of the “death of fine dining” have always proven wrong.

Empty storefronts and spaces the size of a skyscraper’s floor plan cannot go empty for long, and when the pandemic is over and life returns to something that feels like normal, people will do what they have always done with the greatest of pleasure. They will go out to eat, sit at their favorite table, order a good bottle of wine and be very happy again.

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