Outlook: 2017
25 / NREI Outlook: 2017/ www.nreionline.com
The restaurant landscape has changed remarkably this year
as wage growth improved household balance sheets and
bolstered discretionary spending, which has supported a
33 percent rise in bar and restaurant sales since 2010. In
the year-long period ending September 30, 2016 sales at
bars and restaurants surged up 6.1 percent to $55 billion,
surpassing the $52 billion consumers spent at grocery stores.
The increase in restaurant and bar spending is the fastest rate
of growth among all retail categories, with the exception of
online shopping, and exemplifies the sector’s robust strength.
In addition to higher discretionary spending at restau-
rants, shifting consumer preferences and the widespread
use of applications such as Yelp and Urbanspoon are
feeding change in the restaurant sector. These online tools
are directing consumers to the most popular concepts that
enhance customer experiences. As a result, new chains and
some local eateries are gaining market share, while many
older chains struggle with slowing revenue streams and
traffic counts.
In this dynamic sector, fast-casual and delivery chains,
such as Del Taco and Domino’s Pizza, have performed very
well. On the other hand, chains such as Ruby Tuesday and
Bob Evans have announced location closures and Cosi,
Don Pablo and Garden Fresh Corp, the parent company
of Souplantation and Sweet Tomatoes, have filed for bank-
ruptcy. The expansion of quick service restaurants has
resulted in an explosion of new brands and locations and
has made this the largest segment in the net-leased retail
market.
The transforming restaurant environment, along with
diminishing retail construction, is having a positive effect
on overall retail vacancy, which ended the second quar-
ter at 5.8 percent nationally, down 40 basis points from
year-earlier levels. Improvement in single-tenant net-
leased space, which is being driven by the restaurant
industry, has been even more pronounced, with vacancy
sliding to 5.1 percent by the end of the second quarter. This
is positively impacting retail rents.
Since the 2010 recessionary peak, retail vacancy has
dropped nearly 200 basis points, spurring a rent gain of 8.1
percent during the same time frame to more than $18.80
per sq. ft. at midyear 2016.
“The strong performance fundamentals in the restau-
rant segment have strengthened investors’ appetites,” said
Glen Kunofsky of Marcus & Millichap’s Manhattan office.
“Transaction velocity has remained consistent over the
year-long period ending June 30, 2016, with the dollar vol-
ume for casual-dining establishments, such as Red Lobster,
reaching nearly $800 million. For a top-tier operator like
Red Lobster, the average cap rate has been in the mid-5
percent range. For smaller credit or regional and local
brands, cap rates begin in the low to mid-6 percent band,
while extend.
Outlook 201725 NREI Outlook 2017 www.nreionline.com.docx
1. Outlook: 2017
25 / NREI Outlook: 2017/ www.nreionline.com
The restaurant landscape has changed remarkably this year
as wage growth improved household balance sheets and
bolstered discretionary spending, which has supported a
33 percent rise in bar and restaurant sales since 2010. In
the year-long period ending September 30, 2016 sales at
bars and restaurants surged up 6.1 percent to $55 billion,
surpassing the $52 billion consumers spent at grocery stores.
The increase in restaurant and bar spending is the fastest rate
of growth among all retail categories, with the exception of
online shopping, and exemplifies the sector’s robust strength.
In addition to higher discretionary spending at restau-
rants, shifting consumer preferences and the widespread
use of applications such as Yelp and Urbanspoon are
feeding change in the restaurant sector. These online tools
2. are directing consumers to the most popular concepts that
enhance customer experiences. As a result, new chains and
some local eateries are gaining market share, while many
older chains struggle with slowing revenue streams and
traffic counts.
In this dynamic sector, fast-casual and delivery chains,
such as Del Taco and Domino’s Pizza, have performed very
well. On the other hand, chains such as Ruby Tuesday and
Bob Evans have announced location closures and Cosi,
Don Pablo and Garden Fresh Corp, the parent company
of Souplantation and Sweet Tomatoes, have filed for bank-
ruptcy. The expansion of quick service restaurants has
resulted in an explosion of new brands and locations and
has made this the largest segment in the net-leased retail
market.
The transforming restaurant environment, along with
diminishing retail construction, is having a positive effect
on overall retail vacancy, which ended the second quar-
3. ter at 5.8 percent nationally, down 40 basis points from
year-earlier levels. Improvement in single-tenant net-
leased space, which is being driven by the restaurant
industry, has been even more pronounced, with vacancy
sliding to 5.1 percent by the end of the second quarter. This
is positively impacting retail rents.
Since the 2010 recessionary peak, retail vacancy has
dropped nearly 200 basis points, spurring a rent gain of 8.1
percent during the same time frame to more than $18.80
per sq. ft. at midyear 2016.
“The strong performance fundamentals in the restau-
rant segment have strengthened investors’ appetites,” said
Glen Kunofsky of Marcus & Millichap’s Manhattan office.
“Transaction velocity has remained consistent over the
year-long period ending June 30, 2016, with the dollar vol-
ume for casual-dining establishments, such as Red Lobster,
reaching nearly $800 million. For a top-tier operator like
Red Lobster, the average cap rate has been in the mid-5
4. percent range. For smaller credit or regional and local
brands, cap rates begin in the low to mid-6 percent band,
while extending into the low-7 percent range,” Kunofsky
concluded.
For quick service restaurants, transaction velocity rose
considerably over the past year as well, with prices falling
between $450 and $1,500 per square foot, depending on
brand name and location. McDonald’s and Starbucks
stores trade at significant premiums to the average store-
front. The average cap rate for these assets was in the high-
5 percent band during the last four quarters, with deals
in the mid-4 to mid-6 percent range. Lease length and
tenancy are the most important investor considerations in
this segment.
As we look to the casual-eating establishment market
outlook in 2017, investors will focus on large established
chains for the bulk of capital inflow into the sector.
Struggling brands will trim locations, while new concepts
6. Assignment: Individual – Trend persuasive Presentation
Turned in- beginning of class
The purpose of this assignment is to identify an up-and coming
trend in the hospitality industry. Students will collect credible
sources regarding the trend and be able to find facts/evidence in
support or in disagreement with the industry trend. Students
will then present orally regarding their research and
recommendations. Oral presentations will be given in 5 minutes
via Power Point. The power point presentation will include facts
and data from credible sources. Students will also turn in a brief
proposal summarizing their findings including proper APA
citation.
For this assignment:
1. Select a trend in the hospitality industry based on an
academic journal article.
2. Identify specific companies who are implementing this trend.
3. Why was this trend developed?
4. What other articles or literature mention the trend?
a. Need at least 3 articles.
5. What are the pros of this trend?
6. What are the cons of this trend?
7. Who benefits from this trend?
8. Who could be harmed by this trend?
9. Would you recommend implementing this trend in San
Francisco? Why or Why not? Where?
Oral Presentation should have
1. A clear and concise introduction
2. A clear and concise conclusion.
3. A reference slide including citations in APA
Grading Rubric
Oral Presentation
Used proper presentations skills as learned in class (voice
annunciation, eye contact, visuals, graphics, and engaging
7. presentation techniques).
Compliance
Presentation was 5-7 minutes in length. Answering all
questions. Includes the components of an oral presentation
Summary
Writing will be clear and professional. The summary should be
double spaced (2), in 12-point Times New Roman font, and have
1 inch margins. The summary should include all information
required in presentation. Summary should be no more than 2
pages long.
Trend Topic:
_____________________________________________________
__________________
Article 1:
Title:
_____________________________________________________
_________________________
Author:
_____________________________________________________
_______________________
Source:
_____________________________________________________
_______________________
Support of Trend #1
_____________________________________________________
____________
8. Implication of Trend #1
_____________________________________________________
___________
Support/Implication #2
_____________________________________________________
___________
APA Citation:
Article 2:
Title:
_____________________________________________________
_________________________
Author:
_____________________________________________________
_______________________
Source:
_____________________________________________________
_______________________
Support of Trend #1
_____________________________________________________
____________
Implication of Trend #1
_____________________________________________________
___________
Support/Implication #2
_____________________________________________________