What Is the Restaurant Renaissance, and How Will It Impact Investors?

The restaurant industry was rocked by COVID-19, with thousands of restaurants across the country still weathering the storm over a year later. But as the coronavirus vaccine becomes widely distributed and states start to loosen restrictions, a restaurant renaissance is set to begin. Learn what the restaurant renaissance is and how it could impact real estate investors.

What is the restaurant renaissance?

The term “renaissance” refers to a period of resurgence. The restaurant renaissance, as it’s sometimes referred to, is the revival of restaurants after the massive shutdowns the nation has faced. The restaurant industry was one of the hardest hit, with over 26,000 restaurants closed within the first five months of shutdowns, 60% of which were permanent shutdowns. Overall, 110,000 restaurants closed by the end of 2020, representing about 17% of the total number in the U.S.

As consumers become more comfortable with leaving their homes and gathering and eating in public places, an increase in restaurant demand is likely to ensue. But much like the art and culture that returned during the renaissance was forever changed from the prior periods in history, how people want to dine has also changed. Surviving restaurants have had to adapt their techniques to market to a completely new customer demand.

Restaurant demand in the age of renaissance

Of top concern for diners is health and cleanliness standards. A recent Zagat survey found that 1 in 3 people surveyed will eat out within the first week of restaurants reopening, but outdoor seating is the No. 1 most important factor to them. Also important were social distancing being respected between tables. Despite the ability to gather more safely, indoors or outdoors, this trend will likely continue as a priority, meaning smaller, urban, or indoor-only restaurants will have to get creative.

Restaurants with access to large outdoor spaces will be able to best adapt to fit these needs, but other restaurant tenants will likely need to seek new spaces or modify their current space to accommodate for new design trends.

Thankfully, qualifying and eligible restaurants, including saloons, bars, or even food truck operators, can apply to receive grant money from the recently passed Restaurant Revitalization Fund program, which allocates $28.6 billion to assist restaurants and other food and beverage-related businesses negatively impacted by COVID-19.

The goal of the program is to help provide compensation to the impacted businesses for loss in revenues in 2020, but also for continued operation of their businesses, providing up to $28,600 for each eligible entity. These funds can be used to help make certain improvements to the restaurant to improve social distancing, outdoor seating options, or other cleanliness measures.

How the renaissance impacts investors

A renaissance is good news for real estate investors, particularly those who invest and/or have interest in retail or other commercial real estate through a related real estate investment trust (REIT). Increased demand for restaurant dining directly results in an increase in revenues, allowing tenants who may have received a rent deferral or been making partial payments to make up back rent. The Restaurant Revitalization Fund program also means restaurant owners have additional funds to help them improve business operations to increase sales, possibly through new seating configurations, online ordering, or delivery services.

Keeping an eye on which retail REITs are still offering value in their share price with room to recover during this renaissance period is the best way to capitalize on the opportunity. It may also be worthwhile to invest in retail space that offers what diners are looking for: larger spaces with outdoor seating and ease of to-go or delivery options.

COVID-19 has changed the industry long term, but the restaurant renaissance will help businesses and real estate owners adapt to changing conditions over the coming months and years.