40% of Restaurants Close Because of BAD Real Estate?!

We’ve all heard the saying, “Location, location, location.” But when it comes to restaurants, this mantra is more than just a cliché. Poor real estate choices are one of the leading factors in restaurant closures. In fact, a study by Ohio State University revealed that 60% of restaurants fail within their first year, and 80% within five years.
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Real estate—often overlooked—can be a key factor. About 40% of these failures can be linked directly to bad location choices, according to industry research from the Restaurant Brokers Network.
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I've seen firsthand how critical real estate decisions can make or break a business.
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(This is why we spent an enormous amount of time and effort making sure our QSR was based in two prime locations in central London.)
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It’s not just about finding a spot that looks good or has a nice building…
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…The location must fit your concept, customer base, and operational needs. It is the literal groundwork for how much footraffic you get, how much you need to spend to acquire a new customer, your profit margins, your labour costs and sooooo much more.

So here’s what you need to know when choosing the right spot for your restaurant.

Why Real Estate Matters in the Restaurant Business

Choosing the wrong location for your restaurant can lead to a variety of issues, from low foot traffic to difficulty attracting the right clientele. But let’s dive deeper into why real estate is so crucial for the success of your business:
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1. Foot Traffic and Accessibility

You want to ensure that the location is visible and accessible. According to a report from QSR Magazine, 38% of diners will choose a restaurant based on convenience alone. If your spot is hard to find, or parking is limited, you’re already at a disadvantage.
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2. Demographics and Market Fit

Knowing your target demographic is essential for choosing the right location. Restaurant Dive suggests that understanding the local population’s income levels, food preferences, and spending habits can determine whether your concept will thrive. For example, opening a high-end restaurant in a lower-income neighborhood or a fast-casual spot in a high-end shopping district may not yield the desired results.
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Action Tip:

Use data from local city planning offices or websites like DemographicsNow to get an accurate sense of the population, their dining habits, and the type of restaurant concepts that already exist in the area. This research will help you avoid areas where there’s oversaturation of a certain cuisine type or where there’s simply no demand for your offering.

3. Competition and Neighboring Businesses

Competition can either help or hinder your business. Restaurants often benefit from being near competitors or complementary businesses, as it can create a dining district where foot traffic is higher. However, too much competition can be a killer.
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Action Tip:

Before signing a lease, spend time in the area. Track foot traffic, observe customer behaviors, and check how neighboring businesses are doing. Placer.ai is a tool that can provide detailed data on foot traffic and customer trends in any given area.
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What to Look for When Choosing Restaurant Real Estate

Now that you know why location is critical, let’s discuss what you should look for in a restaurant site. Here are some tried-and-true factors to consider:

1. Visibility and Signage

The ability for passersby to see your restaurant from the street cannot be overstated. The National Restaurant Association states that 50% of new customers find restaurants just by walking or driving past. Ensure that your storefront has high visibility, and that you’re able to add clear, inviting signage.

Action Tip:

Before finalizing a location, drive or walk by at different times of the day and week. If you’re struggling to spot it, your customers probably will too.

2. Parking Availability

Limited parking can severely restrict your customer base. While this isn’t always a problem in urban areas where people are used to walking, suburban or rural locations need ample parking options.

Data Point:

A Technomic study found that 43% of customers said they were less likely to visit a restaurant without easy parking options. If parking is an issue, you may need to invest in partnerships with nearby parking garages or valet services.

3. Rent-to-Revenue Ratio

This is one of the most overlooked factors when choosing real estate. Restaurant Business Online advises that rent should ideally be no more than 6-8% of your gross revenue. Going over this percentage puts unnecessary strain on your business and can make it difficult to turn a profit, especially in the early stages.

Action Tip:

Do the math before you sign the lease. Consider whether the expected revenue can comfortably cover rent and other operational expenses.

How to Get the Right Data for Your Decision

Armed with the right data, you can make informed decisions on restaurant real estate. But how do you get that data?

1. Use Commercial Real Estate Brokers

These professionals specialize in restaurant spaces and often have insights on the local market, including demographic data, customer traffic, and competition. They can help you avoid costly mistakes and provide insider knowledge on up-and-coming areas.

2. Online Tools and Platforms

Websites like LoopNet and CIMLS provide commercial real estate listings, often including useful neighborhood data. Additionally, tools like Placer.ai and DemographicsNow can offer insights into customer behavior and demographic fit for your restaurant.

Conclusion: The Right Location Can Make or Break You

Bad real estate is one of the leading reasons why 40% of restaurants fail, and choosing the right location is about more than just picking a spot that looks good or fits your budget. You need to dig into data, understand your market, and ensure your location supports your restaurant concept.

Action Steps:

1. Research foot traffic, parking, and visibility before committing to a space.
2. Use tools like Placer.ai or work with commercial real estate brokers to get a clear picture of the competition and customer base.
3. Always factor in your rent-to-revenue ratio to ensure your business can sustain long-term growth.

I’ve learned the hard way that the right location can make all the difference between success and failure. Choose wisely!

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