Understanding Second Generation Restaurant Spaces

There's no doubt that second generation restaurant space is in high demand in commercial real estate right now. That's why understanding the ins and outs of this type of space is crucial for anyone looking to enter or succeed in the competitive world of the restaurant industry. Because we're always working to make sure that you're in the know on the topics that matter to you most, we're offering an in-depth look at what second generation restaurant space is as well as the benefits and challenges of using it.

The Difference Between First and Second Generation Restaurant Space

Tyler Huntington

If you're thinking of opening a new restaurant or moving an existing one to another location, understanding the difference between first and second generation restaurant spaces is essential. Pickett Sprouse Commercial Broker and former restaurateur Tyler Huntington explains that a first generation restaurant space is any space that hasn't been previously upfitted as a restaurant. Therefore, it doesn't have the infrastructure to accommodate a restaurant. It could have been a retail space or a convenience store, so it might have basic infrastructure such as some plumbing and electrical in place, but there would still have to be a lot of upgrading to make it suitable for a restaurant.

On the other hand, Tyler defines a second generation restaurant space as one that was previously occupied by a restaurant but is now available for lease or sale. It may have gone out of business or someone is purchasing the restaurant concept that is currently operating there. "A second generation space will generally have a lot of the basic infrastructure in place. It may have a larger electrical panel than a retail space might need. There will also usually be a hood and ventilation system. That, a grease trap, and plumbing with a lot of drains are the big things that a lot of people are looking for in second generation restaurants."

The Most Common Questions to Ask About Second Generation Restaurant Spaces

Before you decide on a second generation restaurant space, there are many questions to ask. Among the most common are:

  • What is the size of the floor area in square feet?
  • What kitchen equipment, such as the hood, sink, or HVAC, is included?
  • What is the condition of the electrical and plumbing systems?
  • What is the layout like, and how much will it cost to modify it to suit a new concept?
  • What are the parking facilities like?
  • Is the location suitable for your target market?
  • What will the rent be, and what terms is the landlord offering? (2)

It's crucial to assess all these aspects before closing any deal. Some second generation restaurant spaces may seem like great opportunities, but hidden expenses could hurt your bottom line.

Benefits of Choosing Second Generation Restaurant Space

Once you understand what a second generation restaurant space is and know the right questions to ask, Tyler says it's time to look at the potential benefits and advantages of choosing such a space.

Cost Efficiency

The potential cost savings can be significant if you're not having to put all of the infrastructure in place. "You're not having to put the hood in, you're not putting the exhaust system on the roof, you're not running the plumbing, and you're not having to put all the HVAC in. You don't have to deal with all of these expenses. The amount of HVAC a restaurant space requires is a lot more than what a retail space requires. If that's already in place to support a restaurant, then that's a huge savings."

Time Savings

Utilizing a second generation restaurant space can significantly accelerate the timeline of opening a new restaurant. "You don't have to do all the infrastructure work. You don't have to order the hood and wait until it comes in, and you don't have to wait until the plumber can come in and install all that plumbing. You might change a lot of cosmetic stuff, but if you're able to work around the existing infrastructure, you're just going to drop in your equipment, make a new theme, and maybe build out your interior."

Potential Built-In Customer Base

If your customer base is a good fit with the previous restaurant's customer base, you can potentially absorb those customers, Tyler says this can happen if you're planning to serve the same type of cuisine or target the same demographic. "You've got people that like the place, and they're used to going there. It may be their regular stop on the way home from work to pick up dinner. If people are used to having a positive experience there, you could definitely benefit from the previous owner's customer base."

Negotiable Rent

If a restaurant space has been vacant for a while, landlords are often eager to rent it out. This gives the potential tenant an opportunity to negotiate the rent.

Potential Challenges of Choosing Second Generation Restaurant Spaces

While there are clear advantages to choosing second generation restaurant spaces, Tyler points out that there are also certain challenges.

Potential need for renovations or remodeling

The layout or design of the space might not align with your needs or vision of the new restaurant. This can require additional time and financial investment to make the necessary changes to create a functional and appealing space. Tyler explains that this can often be the case with franchise owners who have to adhere to a certain design. Second generation restaurant spaces are much more conducive to those who can be flexible with their design.

Possibility of inheriting outdated or worn-out equipment

Second generation restaurant spaces may come with existing kitchen equipment that might be aged or in need of repairs or replacements. This can impact the efficiency and quality of operations and may require additional upfront costs.

Pre-existing design or layout limitations

These spaces might have fixed features such as utility locations, plumbing systems, or structural designs that can be difficult to modify or adapt. This can restrict the flexibility and customization options for the new restaurant owner and may require creative problem-solving.

Existing contractual obligations or liabilities

There could be lease agreements, contracts with suppliers, or unresolved legal issues that the new restaurant owner inherits. These obligations can create additional financial or legal burdens that need to be addressed and resolved.

Finding suitable properties

Second generation restaurant spaces are in high demand In the Triangle right now. Finding one that fits your size, layout, and infrastructure requirements may be difficult.

Preconceived ideas about the space among customer base

This is the flip side of the benefits of having a built-in customer base. A history of frequent concept changes in the space could create a negative impression among potential customers. This, in turn, could hurt your business. Tyler says it's important to know why the previous concept closed or failed. In some cases, it may have been as simple as the owner retiring. But in other cases, it may have had to do with the location or the building itself.

Bottom Line on Second Generation Restaurant Spaces

Choosing a second generation restaurant space can be a smart move for many restaurateurs. However, it's important to thoroughly assess the property and consider all the potential costs. With careful planning and negotiation, an SGRS can provide an excellent opportunity to establish a successful restaurant business.

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