Will the tables turn on the landlord versus tenant landscape?
By Christian Salloum Published On June 15, 2020
Historically, landlords around the world have always had full control of tenants and leases, it is no different in the vibrant and bustling city of Dubai. Now faced with a global pandemic is this landscape set to change and become a buyers’ market?
There is no doubt that the outlook for post-COVID-19 for restaurant operators and investors is going to be very cloudy for at least the next six to nine months. However, companies should consider a positive strategy and consider real estate opportunities that lie ahead. Benefits will include securing great locations for brand development and improvement or negotiating better terms and conditions within contracts.
Closure, re-assessment, and opening phases
Many companies completely shut down operations during the COVID-19 pandemic, and there will be tremendous efforts to bring these businesses to the re-opening phase with a focus on the implementation of new safety precautions, monitoring an evolving landscape of regulations and recommended practices, re-hiring and training team members. There will be an upturn in the creative usage of strategic external consultants for operational advice, reshaping of business models and administration enhancement, particularly in companies that rely on expatriate labor or business improvement. Increase in footfall is essential for the mutual landlord and operator partnership.
BrandPortunity is a collaboration of experts in the foodservice sector. Christian Salloum envisages a slow emergence of new-unit development or well-calculated risk projects that are focused purely on top and bottom lines. “The top line is linked to innovation and on valuable products that the consumer will pay for, in other words, increasing revenue. Operators will to have to become very tough negotiators with their landlords or rely on real estate agencies and expert consultants to negotiate on their behalf. Is restaurant development going to witness a slow-down or will operators and investors in the food industry see a post-pandemic real estate opportunity ahead?”
Landlords will need to be flexible and supportive to their restaurateurs, particularly those that increase footfall into shopping malls and food hall experiences. As with operators, landlords will also need to change behaviors and correspond to new guidelines and regulations. A Harvard study shows that social distancing expectations will remain at least until 2022. Operators are already revisiting their business models and CAPEX, which includes a drastic reduction in real estate spend and negotiating lower or rent-free terms for short-term survival. However, tenants also have to respect that landlords also have related expensive and outgoings.
Many restaurants are likely never to re-open, which will lead to landlords offering favourable rates to fill vacant properties. Boutique and SME’s will be ready to sell their businesses or be taken over by big operators for low values. For these small companies to survive, they will have to shrewdly manage their costs and consider ventures with larger operators that already have a solid infrastructure. If a company is willing to sell, then they need to conduct market research for their true value. This will likely translate into improvement allowances for restaurant tenants and provide new terms that are favourable to operators. There will be an opportunity for expansion for the companies that have the capital, or sustained their investment and cash-flows.
Some operators will be well-positioned for expansion in the post-COVID-19 environment. Christian Salloum added “As we come out of this crisis, there will be increased development opportunities for brands who understand smaller establishments, that can embrace unique attributes and have the financial ability to occupy prime sites. We are looking at all new opportunities with fresh eyes and creating a resilient model which will be more attractive for franchisee enquiries in the near future”.
Traversing new landscapes
Expansion plans are on hold for most operators during this time of weakend economy. Millions of consumers will likely cut back on spending amidst the sharp downturn of employment. “We will see some tricky waters to navigate as operators learn how the pandemic has re-shaped the industry. There will be the rise and fall of new and existing brands. We will see restaurants with innovative and vibrant ideas and insightful offerings take hold of the new market. Restaurants and customer expectations will change and the industry will flourish once again”.
BrandPortunity recommends that their clients continue to engage and share innovative ideas with their customers. Business models will be renewed and operators will consider downsizing their working spaces, teams and menu offerings. Technology will play a big part to create the new digitilised experience. New stylish areas will appear and space flexibility will be paramount when negotiating rental fees. Salloum’s parting comment gives food-for-thought to all operators “In the end, an important question, how much money can operators afford to pay in the coming year to survive and sustain the losses until operations and a ‘new normal’ is identified following consumer reactions”.
COVID-19 – restaurants – operators – real estate – landlords – negotiation – win-win
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