How to Lease a Restaurant Space: 7 Things to Consider

Searching for the perfect restaurant space to lease? Here are our top questions to ask.

While many believe that exceptional cuisine is the cornerstone of a successful restaurant, the reality is that location is often the true game-changer.

A commercial space situated off the beaten track might be the perfect discovery, but it’s far more likely to get passed by in favor of the more convenient location. On the other hand, a commercial space on a busy thoroughfare might seem ideal, but not if the rent price blows your budget out of the water. And that’s all before factoring in such considerations as the maximum seating layout or the parking situation.

In the all-important quest for the perfect space, it can be a challenge to remember to ask all the right questions. But before you start negotiating price, here are 7 questions to bear in mind as you decide whether an Ann Arbor restaurant space will meet your needs.

Before you Buy: Understanding Your Business Needs

Define Your Concept and Target Audience

Before you even start looking at Ann Arbor restaurant spaces for lease, make sure you have a clear vision of your restaurant’s concept and the audience you aim to attract. Are you planning to open a cozy family-friendly diner, a chic downtown bistro, or perhaps a trendy bar? Each concept comes with its own set of requirements and ideal locations. 

For instance, a family-friendly restaurant might thrive in a suburban area with ample parking and outdoor space for kids to play. On the other hand, a trendy bar would benefit from a downtown location with high foot traffic and a vibrant nightlife scene. Understanding your concept and target audience will guide you in choosing a location that aligns with your business goals and attracts the right clientele.

Know Your Budget

You’ll also want to have a clear understanding of your budget before you start your search for the perfect Michigan restaurants for lease. Your budget should encompass not only the monthly rent but also other expenses such as property taxes, insurance, and operational costs. 

When determining your budget, consider factors like the size of the space, its location, and the condition of the property. A good rule of thumb is to allocate 5-10% of your projected revenue towards rent and utilities. 

For example, if you anticipate generating $40,000 in monthly revenue, aim to spend no more than $2,000-$4,000 on rent and utilities. This approach ensures that your operational costs remain manageable and your business stays financially healthy.

What to Ask About a Restaurant Lease in Ann Arbor

1. What kind of floorplan options does it allow?

Back in the day, most restaurants followed general floor plans based on their aesthetic. Large family diners favored larger tables, small bars featured booths, and fine, white-napkin establishments prioritized small, intimate arrangements.

These days, creative styles are more on-trend. A mixture of group seating, booths, and small tables can accommodate a wider variety of visitors, preventing a restaurant from boxing itself in as a space only suitable for specific events. Because of this, restaurant spaces that allow for flexible, innovative layouts in the dining room have a chance of grabbing interest and establishing a loyal following.

2. How much seating is available?

The maximum rent a restaurant owner can afford is a delicate balance between operating costs, menu pricing, and restaurant capacity. Even a modest-seeming rent figure can be untenable if the restaurant space is too small to hold the requisite number of guests. And while different floor plans can maximize seating space in different ways, cramming in too many tables can lead to a noisy, unpleasant, hard-to-navigate environment.

Talk to an architect about seating, and look over some concepts to see what your possibilities are. This will also help you conceptualize the space better, so that you can work toward a more accurate budget.

3. Is there a patio or other outdoor space?

Speaking of flexible spaces and seating plans, there’s nothing like a patio to expand your dining space, particularly on a warm summer day when no one wants to eat indoors. While patio seating may be seasonal, it’s also an attractive addition to your seating options. Even better, a patio area located near a pleasant environment can be the decisive factor between your restaurant and a competitor’s on a good day.

Keep in mind though, outdoor and sidewalk seating often comes with the added need of permits and permissions. Certain streets in the downtown area may also shut down for additional table space, which can be a serious boost for downtown restaurants.

4. Is it located in a well-trafficked area?

Local population and traffic conditions play a significant role in a restaurant’s success. Most diners make their selection based on convenience. They’re looking for a spot that’s close to where they are or where they’re going. Lots of nearby residences also lead to regular customers, adding to the restaurant’s stability. Restaurants along a common work route benefit from the same factors.

Meanwhile, locations near other popular destinations have their own appeal. Downtown spots attract a strong lunch crowd, as well as evening restaurant-goers looking for a place to eat on a night out.

5. Is there enough on-premise parking?  

Unless you’re located in a downtown area with high foot traffic, you will need to take available parking into consideration when you look at your new space. Too much on-site parking and you’re overpaying. Too little, and you may lose customers who aren’t willing to go to the extra effort of searching for a spot on an empty stomach. Fortunately, you should be able to calculate your parking needs based on your seating capacity. So long as you do the math beforehand, it shouldn’t take you by surprise.

You will also want to keep an eye out for commercial loading zones. Consider where your restaurant will accept deliveries, and if that will be an added convenience or added hassle.

6. What does the competition look like?

The presence of other restaurants in the area isn’t a bad sign for your business, even if it does mean competition. On the contrary, the presence of restaurants points to high demand, and a known restaurant corridor can increase the likelihood of discovery. Connecting with other restaurant owners can also provide valuable insights and shared experiences related to restaurant leases and negotiations.

However, if you’re planning to open a particularly unusual restaurant that happens to be similar to another restaurant nearby, it may be wiser to consider a different location. A unique restaurant concept can be a draw if it helps you stand out from the crowd, but a drawback if it has to split the curious or adventurous eaters with another maverick location.

7. Does the space come with a liquor license?

Liquor licenses can cost tens of thousands of dollars to acquire, and the number issued to an area is restricted by the local population. Many restaurant spaces come with a liquor license factored in as part of the price. This can cut two ways, depending on whether you plan to sell alcohol at your restaurant. On the one hand, you no longer need to worry about the availability of the license. But on the other hand, it comes at a significant expense.

While it’s possible to negotiate this cost with the restaurant owner, some restaurant owners prefer to forgo the license. In that case, the owner of the space may be reluctant to sell, knowing they won’t be able to recoup the license cost. Either way, you’ll need to discuss the matter with the broker or landlord so that you know what you’re paying for.

Understanding the Lease Agreement

Types of Commercial Leases

When leasing a restaurant space, it’s important to understand the different types of commercial leases available. Here are the most common types:

• Gross Lease: In a gross lease, you pay a flat monthly fee, and the landlord covers all operational costs, including property taxes, insurance, and maintenance. This type of lease offers simplicity and predictability in your monthly expenses.

• Net Lease: With a net lease, you pay a lower flat monthly fee but are responsible for some operational costs, such as property taxes, insurance, and maintenance. This can lead to variable monthly expenses, so it’s important to budget accordingly.

• Percentage Lease: In a percentage lease, you pay a fixed rental rate plus a percentage of your gross sales. This type of lease aligns the landlord’s interests with your business’s success but can lead to higher costs during peak sales periods.

• Variable Lease: A variable lease involves rental rates that change based on an index or a pre-set schedule. This type of lease can offer flexibility but requires careful planning to manage potential fluctuations in rent.

Be sure that you understand the terms of your lease agreement. Negotiate a lease that suits your business needs, considering factors such as the length of the lease, the rent amount, and renewal options. A well-negotiated lease can provide stability and support your restaurant’s long-term success.

Are you looking for flexible Ann Arbor restaurants for lease?

To explore opportunities, reach out to us and we would be happy to send you more information. Contact Oxford Commercial today.