Before the pandemic, casual restaurants were considered a symbol of stability in the retail industry. Internet-resistant and affordably priced, these establishments were a coveted tenant profile for investors. Then, the pandemic upended standard market dynamics. Stay-at-home orders diminished demand and casual restaurants struggled to survive—and some didn't.
In the last year, casual restaurant purveyors have rallied, pivoting to meet market needs and pioneering concepts to drive revenue. "Tenants are changing with the times, and some investors see that as a sign of strength and security," says Chuck Evans, VP and senior director of net lease assets at Matthews Real Estate Investment Services.
Innovate and Adapt
Today, dining demand has rebounded and casual restaurants are recovering from the remaining impact of the pandemic—and innovation is playing a critical role in that recovery. Casual restaurant concepts have partnered with internet companies to create an omni-channel experience where customers can order takeout online and have it delivered directly to their homes. "Restaurant concepts have done exceptionally well with these partnerships," says Evans. "It is a great sign of innovation and really being adaptable to the market."
Other casual restaurants are creating drive-thru delivery windows to provide a quick-service option to customers, and some have launched delivery-only brands that utilize a portion of the restaurant's kitchen as a ghost kitchen.
These innovative ideas are not only creating value and driving revenue, but they are also revitalizing investor interest. "Investors are interested in those concepts because it provides more security," explains Evans. "Investors know that if the times change, the restaurant will change with it. That is certainly one reason why investors are buying these types of casual dining deals."
A Promising Future
This adaptability is securing a future for the sector, according to Evans, who forecasts improving investor appetite for casual dining deals next year. "They made it through the pandemic, and there is a sense where if you can make it through that, you can make it through anything," he says. There is also a social aspect at play. Now that pandemic lockdowns have ended, people want to go out, unplug and spend time together.
From the capital perspective, investors are increasingly looking for opportunistic deals and opportunities for portfolio diversification. Evans says that casual restaurants have an attractive risk-return proposition and are a great way to round out a portfolio.
For these reasons, he expects casual dining will continue to garner attention. "Casual dining has been a staple, and I think it will continue to do that," he says. "Casual dining concepts are going to be around as long as real estate is around."
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Kelsi Maree Borland
