Hot Off the Market

Five Guys Burgers and Fries. Chipotle. Le Pain Quotidien. These are a few of the recent deals that have been stirring up more activity in the restaurant sector of the region’s commercial real estate market. Recovery in the restaurant industry might be slow, but area commercial real estate brokerage firms say restaurant leasing activity has picked up over the past year as restaurateurs take advantage of more ideal locations at lower prices. Industry experts say the restaurant climate is heading toward improvement, with fast-casual dining segments recuperating faster than others. Fast-casual restaurants are considered restaurants with higher quality food, more service and higher ticket prices than fast food restaurants. “There’s a lot of new concepts coming to the market (and) there’s a lot of expansion from other markets coming into California,” said Todd Nathanson, president of Encino-based illi Commercial Real Estate. Many of those restaurants are taking advantage of more desirable locations that are opening up as other businesses close or move away, he said. Examples of more desirable locations may be free-standing buildings or drive-thru locations, he added. illi Commercial did 10 restaurant leasing deals last year in the greater Los Angeles area compared to six deals the year before, according to data provided by the company. The brokerage firm has completed five deals this year and has others in the pipeline. David Rush, senior vice president for CB Richard Ellis, said lower prices are a major factor, as well. While restaurant property lease rates dropped in line with most other retail properties starting about a year ago, many restaurant owners just recently started taking advantage of the opportunities to expand, Rush said. CB Richard Ellis started getting an uptick in restaurant activity during the second quarter of this year. “People sat on the sidelines for a while not doing anything, so I think there was a little bit of pent-up demand,” Rush said. Both Rush and Nathanson said brokers have been seeing a lot of interest from gourmet burger establishments, franchised restaurants, frozen yogurt shops and well-known regional and national chains. “We see a lot of activity from the typical (chains) — Subway, Five Guys Burger and Fries, Chipotle,” Nathanson said. One deal illi Commercial handled earlier this year resulted in a leasing agreement for a new Chipotle restaurant that will open on the corner of Van Nuys and Burbank boulevards in Encino, he said. Five Guys Burgers and Fries also has been on a growth spurt, which include a few locations in the greater San Fernando Valley region. Nationally, visits to fast-casual restaurant chains increased by 17 percent over the last three years while the rest of the industry suffered some of its steepest traffic declines, according to national foodservice market research released by The NPD Group in March. The segment’s unit availability expanded by 12 percent for the same period, the market research company said. Restaurant expansion opportunities Richmond, Va. -based Monument Restaurants, a franchisee for Five Guys Burgers and Fries restaurants, just opened a new restaurant last week in Simi Valley, a little more than a year after it opened one in Thousand Oaks, said Joe Rasic, the company’s director of operations. The company also plans to open another location in Northridge in about a month, he said. Meanwhile, the company has also opened other Five Guys locations throughout the state and have more openings planned this year, Rasic said. “We are definitely finding properties that are interesting to us,” Rasic said. Officials from Le Pain Quotidien, a New York-based restaurant chain that has a location in Studio City, said the company is considering better real estate deals as it expands in the Los Angeles market. The chain is opening a new restaurant in The Commons at Calabasas shopping center this fall, following about two years of no new store openings in the Los Angeles area, said Tony Martin, Le Pain Quotidien’s director of operations for Southern California. “There are some better deals with landlords,” Martin said, noting that there are also better sites available. Marin said the restaurant chain’s sales and profits have been trending upward over the last 18 months. While there are some bright spots in the restaurant industry, many establishments are still struggling, said Daniel Conway, spokesman for the California Restaurant Association. He said his organization is still seeing prominent restaurants closing across the state. “There’s a lot of economic uncertainty out there,” Conway said, noting stock market instability and high unemployment rates. “You’re still not seeing a lot of consumer spending. … If you add rising commodity prices, we’ve been looking at kind of historically narrow margins for the past few years.” However, some restaurant sectors have been able to fare better than others, he said. Those often are more established chains in the fast-casual segment. “They tend to have a quality of food that people are looking for and they tend to have the price points people are looking for,” Conway said. Conway said there is in an expectation the industry will start to improve overall by the end of the year.