A Growing Market Battles for Pad Sites

With a market that continued to expand through the recession, fast casual dining restaurants are now battling over limited pad sites. What is a “pad site” you may ask? Pad sites are those outlots that sit in front of shopping centers and grocery stores. The appeal of these sites comes from them being centrally located in highly trafficked parking lots, such as shopping malls, strip malls, and large stores with massive parking lots like Lowes and Home Depot.

While these pad sites are especially appealing to restaurant franchises such as Checkers and Rally’s, more recently non-traditional retailers, including clinics, dentists, and chiropractors are now pursuing these retail sites. Medical facilities are trying to provide more convenient locations for their customers, and what is more convenient than a place situated smack dab in the middle of a busy parking lot?

Due to a peak in interest surrounding purchasing pad sites, prices for these small plots of land have gone way, way up. Small sites in certain areas can be upwards of $1 million just for the property itself. Companies like Checkers and Rally’s prefer sites that are prices closer to $500,000. The high demand but low quantity of these sites in many areas is leading to many battles over prime pad sites, where multiple offers are made and one franchise must be another one out for the space.

Franchise Real Estate Trends that You’ve Got to Check Out

I recently read an article in Franchise Times (“Eight trends top the year’s list of big stories in real estate” by Beth Mattson-Teig) about real estate trends among franchises around the world. Some very interesting trends (including oddball locations such as a Subway store on a German riverboat) make the list and give franchisees a glimpse into the vast possibilities of location, location, location.

The list is as follows:

1. Top Towns
This one isn’t very surprising. Cities on the short list for expansion are those who are ahead of the curve in economic recovery. Interestingly, the article reports that retailers are now looking into “second-tier” markets for development now more than ever, as opposed to large, central cities. Growing cities provide opportunities at lower costs.

2. Think Global
Franchisors are accelerating international growth plans, expanding to emerging markets in Asia and South America. The expansion doesn’t stop there however, as other major franchises are targeting expansion in Russia and sub-Saharan Africa.

 3. Tenants Rule
Due to an excess of vacant space in many cities across the US, many landlords are offering rent discounts and concessions, such as more tenant improvement dollar. While the retail sector is improving, the vacancy rate at neighborhood and community shopping centers is just 60 basis points below the sector’s all time high of 11.1% in 2011, according to Reis Inc.

4. Tech Talk
TV screens are no longer exclusive to sports bars. They are now popping up in a wide array of franchises. Apparently, people report they like the white noise of televisions while they are in a restaurant or bar. Whatever is on television provides a talking point for people socializing with one another as well.

 5. Smaller Footprints
This is a big one. Restaurants and retail groups are now expanding with smaller store footprints. There is currently a drive in America to return to local, mom-and-pop stores. By franchises switching to spaces with smaller square footage, they provide more of a small store feel and less “big box.”

 6. Against the Grain
Non-traditional locations such as college campuses and baseball stadiums are by no means a new trend, but franchises lately have also been finding great success in other high-traffic areas such as inside of convenience stores, as well as at amusement parks, train stations, and hospitals.

 7. Back in Action
While new construction projects were far and few in-between during the recession, the one exception has been outlet malls, which have an estimated 20 million square feet of new projects either proposed or underway, according to Marcus & Millichap.

8. Designs To Go
Lastly, there is a growing demand in our country for home meal replacement. Busy families are driving more business to restaurants that offer quick take-out delivery. Because of this, more focus is being paid to designing for the “to go” service, with marked parking spots for people using the service, and dedicated windows for such orders. Designing buildings with separate entrance and pick-up counters from the rest of the restaurant is on the rise.