November 22, 2019

Report: Fast-casual restaurant chains will continue to grow at a pace of 24%

Image result for panera bread exterior

Despite the fact that real estate deals with restaurants are complex, risky, and require expensive buildouts, the revenue and traffic they churn is so remarkable that landlords continue to seek out more of them for their centers, according to CBRE’s research department.

In the latest installment of its U.S. Food in Demand series of reports, the global research services company placed the restaurant sector as the biggest earner in brick-and-mortar retail with $738 billion in 2018. Restaurant revenues grew 5.6% over the past decade, compared to 4.4% for the rest of retail.

Growing chains are demanding more space than landlords can supply, said CBRE. That that plus a trend toward rising construction costs is resulting in higher occupancy and rent inflation.

Fast-casual restaurants continue to be the fastest-growing restaurant segment. Paced by brands like Panda Express (+38% in sales), Shake Shack (+130%), and Zaxby’s (+25%), these retail center-friendly restaurants grew revenues with average sales growth of 24% between 2015 and 2018.

Dollar sales leaders among fast-casuals are Panera Bread with close to $6 billion in revenue in 2018, Chipotle at just under $5 billion, and Panda Express with more than $3 billion.

It’s easier for big-name brands in the segment to expand and grow, because shopping center owners want tried-and-true names with steadily high traffic rates. However, CBRE reports that more creative and palatable deals are being offered to startups and local players by landlords eager to differentiate their offerings (or who couldn’t land a Chipotle or a Panera).

Quick-service restaurant sales, meanwhile, continue to slow down. Though their accumulated sales of $237 billion still lead the restaurant industry, sales grew at a pace of just 4% over the past six years, and CBRE predicts that growth will continue to cool down to just 1% over the next five years.

McDonalds is in the middle of a $6 billion modernization plan to make the brand more relevant, adding self-order kiosks, digital menu boards, and designated parking spots for pickup of mobile orders. CBRE looked forward to more healthy food options in fast food franchises, which are highly prevalent in low-income neighborhoods.

Ghost kitchens, which exist to fill delivery orders and offer no dine-in experiences, will continue to seek out secondary retail space, CBRE predicts. They may be a boon to center owners with empty boxes to fill, but they bring no additional traffic to the party for other center tenants.