Ready to learn how much rent should be for a restaurant?
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This article will explain everything you need to know so you don’t pay too much rent.
Rent for Restaurants- What is the right rent for restaurants?
Determining the acceptable rent for your restaurant is critical to your success.
Before you start looking at restaurants for lease you need to know how much rent your business can afford.
The general rule of thumb is your total occupancy cost (rent and additional fees for property taxes, insurances, etc.) should not exceed 6-10% of your gross sales.
The numbers that are right for your business may be lower or higher depending on other factors.
How much rent for restaurants should your restaurant pay?
You can benchmark the right rent for your restaurant by looking at the sales and occupancy costs for your competitors.
If they are publicly traded companies, the information is usually provided within Form 10K which can be found on their website under investor information.
The chart below from Chipotle Mexican Grill’s Form 10 K, shows occupancy costs equal
to 6.3% of revenue.
If your competitors are not public companies you will need to dig a little deeper. Ask your competitor’s neighbors how much they pay in rent and you should get a good idea for rents on a per square foot basis.
Based on your research, the occupancy costs for your primary competitors range between 6% and 10%.
If you’re projecting sales equal to $1,000,000 per year, The annual rent you can afford ranges between:
$1,000,000 @ 10% = $100,000
$1,000,000 @ 6%= $60,000
Assuming you need 2,000 square feet to run your restaurant, you can pay between $5,000 and $8,300 per month including NNN charges.
The Market Rent for Restaurants will Determine Where you Open
If your budget is $6,000 per month for a 2,000 square foot space ($3.00 per square foot per month), it does not make sense to look for space in a neighborhood where restaurant rents average $10.00 per square foot.
Now that you have determined your maximum rent, you have a starting point to determine which neighborhoods fall within your budget.
Where can you find Rent for Restaurants?
You can determine the going rent for different areas by searching restaurants for lease on a website such as Loopnet.com.
You can read our step-by-step tutorial “The Ultimate Loopnet.com Guide for Restaurateurs“.
Based on the going rents in the area you can reverse engineer the sales needed to operate at a profit.
For example, after conducting a search you determine rents are $4.00 per square per month or $48.00 per square foot annually.
The size of your ideal restaurant is 2,000 square feet.
2,000 square feet X $4.00 per square foot equals $8,000.00 per month. In addition, the NNN expense is $1,000.00 per month.
Your total estimated occupancy cost is $9,000.00 per month or $108,000 per year.
If you have determined the maximum percentage of gross sales you can afford to pay in rent is ten percent, you know that your restaurant needs to generate $1,080,000.00 in annual sales.
($108,000 / .10 = $1,080,000)
Can You Afford the going Rent?
Using the formula above can your restaurant generate the sales needed to pay the current market rate for rent?
If not, you should continue looking in different trade areas or determine if you can reduce the size needed to keep the rent for your restaurant within the safe range.
Do you have questions about opening a new restaurant? I’m here to help and happy to answer your questions.
Just click here to submit your questions.
Cheers!
Mark Chase
How to Determine Rent for Restaurant
Time needed: 3 hours.
How to Determine Rent for Restaurant
- Research Your Competition
Determine the gross sales and occupancy costs for your competitors. If they are a public company you can read their Form10K. The chart below from Chipotle Mexican Grill’s Form 10 K, shows occupancy costs equal
to 6.3% of revenue.
- What Percentage of Sales Should You Pay For Rent
Your occupancy cost ( rent, common area fees, property taxes) should be 6-10% of your sales
- How to Calculate Rent
Multiply your projected annual sales by the suggested occupancy cost percentages.
$1,000,000 Sales X 10%=$100,000 / 12=$8,333.33
$1,000,000 Sales X 6%=$60,000 /12=$$5,000.00
Based on your projected sales your rent range is $5,000.00-$8,333.33 per month.
- How to Calculate Rent per Square Foot
Rents are quoted either monthly or annually depending on location.
To determine monthly rent:
Multiply the size of the restaurant by the rent per square foot for rents quoted monthly.
2,000 sf X $3.00 per square foot/month=$6,000.00
or
2,000 sf X $36.00 per square foot/year=$72,000 Year/12 =$6,000.00
- How to Determine Asking Rents in Your City
You can determine asking rents by searching commercial listings sites such as Loopnet.com. You can also speak with neighboring tenants to learn what they pay for rent.
- Adjust Your Search Criteria
If the rent is too high you can try the following:
1) Reduce the size of the restaurant space.
2) Buy a restaurant with below-market rent.
3) Open in a different neighborhood where your rent is under 10% of sales.
I liked the tip you gave about asking a competitors’ neighbors about their cost for rent, then using that info to get an idea what your competition is paying. Also, good advice about not looking in areas where you know you can’t afford. It may be nice to look at the high-end offerings, but if they aren’t reasonable for you, then look at what’s actually worthwhile.
It can take some digging around, but worth the extra effort.
We would like to rent our real estate property in Fells Point, Maryland to McDonalds, Chipotle, Wendy, or some franchise company, etc. Where and how should we advertise so that their decision maker gets the attention to contact us? Where and how do they search for Rent or Sale properties.
If you choose to, could you please send your response to my email. Thanks.
Thanks so much for your tips. It’s definitely useful to ask your neighbor about the rents they are paying, but i just doubt how many of them would be willing to tell you about that.
Do you have some tips on how to ask your neighbor about the cost of rents?
The rent your neighbors pay is not that useful unless they recently signed a lease. It’s more important to find out their sales numbers so you can determine how much rent you can afford to pay. You can determine asking rents for the neighborhood by checking sites such as loopnet or calling for lease signs.
Mark Chase,
I just recently bought a building and rented out a 3300 SF resturant and a 5000 foot basement bar to a medical perfessional. My building is in a small town in Okemah Oklahoma, I am in nyc, my tenants set up a facebook page “The Brick Bar & Event center”. I gave the guy a great deal. To good a deal.
how much per square foot can I charge him when the lease come up for renewal? the town is 4000 population.
I would ask a local broker the going rental rates. Your property is in a very small town. Restaurant rents need to stay below 10% of sales for most restaurants to survive. If you raise the rents too much you risk them going out of business and sitting on a vacant building. Ask them to provide income and expenses for past year or two and determine how much they can really afford.
Hello, a good client with mostly single family homes has asked me to sell a restaurant he has leased out. I sell mostly residential real estate and don’t know where to begin with pricing. He has a five year lease starting at $1380.00 per month. In one year the rent goes to $1580.00 per months and after that the rent increases 5% per year. Can you lead me in the right direction on how to price this business? We are in a small city and most larger commercial real estate is handled by out of are brokers. Thank you in advance.
Hi Anita,
Is the restaurant profitable?? typically a profitable restaurant will sell between 1.5 to 3 times net profit. You can also base pricing on percentage of annual sales. I don’t know where you are located so can’t advise proper percentage, but maybe 20-30% of annual sales. Pricing also depends if there is a below market lease, liquor license, etc. I hope this helps.
Best
Mark
Hi Mr. Chase,
I have a slightly different situation, although it is still a lease product in progress. I have a 2014 enclosed concession type fully equipped one axle food trailer (flat griddle and 2 burners, deep fryer, 2 steam warmers, smoke extractor, a small fridge w/freezer, 3 deep sinks, plus small hand wash sink, slide double glass vending window, A/C unit, registration, inspections and licenses to lease, option on electrical power connection or generator usage, generator not included) the working area is 7ft wide x 10ft long x 7ft tall, outside measurements of 8ft wide x 15.5ft long x 8.5ft tall including towing tongue w/stabilizing jack. located in Midland, Tx. currently I am offering 3 plans, a 6, 9 or 12 months. a discounted 2 month entry, then it jumps to regular price plus a one time security deposit of $2,800, fully returnable at end of term. I am trying to restructure my plans to offer a reasonable plan to people so they can start their own small business and at the same time protect my investment on the equipment. what is the proper way to come up with a decent plan and still make it a business for myself? what I did was get the number of working days in the year, plus half of the total weekend days in the year and came up with around a fee of $60 – $65 per day for the year at 313 days total. All I am doing is doubling the price of my investment basically, but although many people has seen the add, very few have responded and none has come to see it yet. I must be doing something wrong. I have also heard of a system using a lower base fee per day of $35 – $40 and a 25% – 30% of their profits or something like that, I did not really understood well, nor know what I can do or not do pertaining the books of my client. perhaps you can explain to me a better plan to come up with attention catching, so I don’t have my equipment just sitting down in my yard. hope you can help with my situation, thanks in advance. attached is a link in facebook marketplace
I would ask each potential tenant for a business plan showing projected sales. Base your rent on 5-10% of their projected sales. Percentage rent may be difficult to collect since many independent operators don’t keep good books.
I rent a restaurant at $1,500 per month and the lease is 2 years. My average sales is $1,000 per day with 4-5 people working who is me and the co-owner mainly in the kitchen. We have part time kitchen staff and 2 staff for cashier and to go pack.
The restaurant is come with the equipment that the landlord said it’s there for you to use but we have to pay for the maintenance fee. We just find out that the owner did not maintenance well with the walk in cooler, and that it break down for 6 time already. We decided to change a new motor and that will cost us another $3,000. After the lease end it will belong to the landlord, we try to negotiate to have landlord help us pay some portion but he said no as the lease state.
Do you think this is a fair term for the restaurant lease with equipment?
Mostly we are happy with the restaurant condition except the cost of fixing. I would like to hear what is fair deal for both party. Thanks.
Hello Mark, My friend and I want to start a Restaurant. There are many hispanics in our area but not one Dominican Restaurant close by. We cook really good so we believe our food will be successful. Can you point us on the right direction? How much do we need to start. I was thinking with a $1500sf location. Ive seen and most locations range from $20-45 per sf. Then comes food decorations and .. taxes. Payroll etc. I just want to have an idea for a good budget. Any tips are greatly appreciated
You can download my ebook How to Open a Restaurant at a Great Location and Great Price…also reach out to Greg at foodpower.com…he should be able to provide a template to help you create a budget and business plan. Best of luck!
Good morning Mr. Chase and thank you for your post. We operate in an expensive area of the Washington DC. suburbs. Our space is 1892 sq ft and our monthly rent payments are $7892.03 and I find that we are constantly having to hold our paychecks during rent week, sometimes for up to 1 week. Our total yearly sales average $875,000. We have been operating for 11 years and change. We are currently about to begin promotions (which we have never done) and try to refresh our image. My question is, what should our total sales be increased to in order to operate without these obstacles?
Your current rent is approximately 11% of gross sales. I would think if your other costs are under control and you can get sales to $950,000 you should be in good shape. If you need name of someone that might be able to help analyze your operation and make suggestions let me know. Best!
Thank you very much for your help! Have a great holiday season.
Mr. Chace, I found your article on What is the right rent for restaurants. to be very helpful. We are going to be opening a Coffee & Tea Café that serves light food (no cooking). Would you consider this to fall under the restaurant class and use the same numbers for rent to sales pct?
I have a small 2100 square foot restaurant and ice cream shop 1/2 in front 1/2 in back of building kitchen in center. I am leasing my building and equipment out to a business whose predicted sales (based on previous business at that location) will be 250k plus. The lease with equipment – turn key with all supplies as well 1600.00 per month and I still pay the taxes. Is this fair? Thank you
Good Evening Mr. Chase. I have a vacant unit available in Rocky Mount NC. in a shopping strip. It was use as a Medical/offices before. I have a tenant want to convert to restaurant use. they asking for TA,etc. The rate for office/retail is between $14 -$18 sf. I do not want to pay for TA, I am willing to give extended free rent as TA but I am not sure what’s the rent rate is for restaurant or how much I should charge per sf. (2032 sf total) for renting as is. Please advise?
Hello,
I’m trying to do projections for a new restaurant I will be opening soon in St. Louis. I always knew that I needed to keep my rent at about 8% and food cost around 25%. But what about other costs like wages and other expenses? I’ve tried researching on the internet that will give me a break down of all the percentages but I haven’t found a reliable site. I want to be able to come up with these numbers before I sign a lease and to show my bank projection numbers when I apply for a loan.
HI. I’m looking to take over a small restaurant business that’s inside an established business. The sales would come only from the traffic the establishment brings in.
The landlord is asking for 30% of gross sales in return for a fully equipped kitchen and utility cost.
Is that a fair price to be paying, considering there’s no start up price to pay?
Also, would demanding to see the landlord’s business sales report be out of line? I feel since the restaurant business is directly related, it’s normal for me to be curious, but the landlord didn’t seem to want to share.
Thank you very much, and i look forward to your reply
Good Afternoon,
Thank you for these posts I have learned a lot. I am looking at building onto a motel. I would like to build a restaurant inside the motel. I however do not want to own a restaurant. The town that I am in has about 7,760 people. I am unsure of what to charge for the lease of the space. I am trying to get info on two different plans. The first would be that I provide the equipment and the second would be that the leaser provides their own.
I am not interested in a percentage of their sales. What do you think would be a reasonable rent for the two scenario’s?