Is 12% occupancy cost too high for a restaurant?

Twelve percent occupancy cost is above the healthy range for most restaurants. Public chains report rent and occupancy between roughly 5% and 11% of sales. At 12%, a restaurant is carrying rent that will show up as thin margins by year three.

What does occupancy cost include?

Occupancy cost is total annual occupancy divided by annual gross sales. It includes base rent, CAM, property taxes, building insurance, and percentage rent where it applies. Utilities usually sit outside it.

How do I test whether a rent is too high?

Divide the proposed annual occupancy cost by the tenant's realistic annual sales. If the result exceeds 10%, the tenant needs higher volume than projected or a lower rent.

What Makes a Good Tenant Mix?

Sep 26

Written By Retail Made

A good tenant mix spreads demand across the day and gives customers a reason to visit more than one store in a single trip. A bad one puts several businesses in competition for the same customer at the same hour.

The test is not whether each tenant is strong on its own. It is whether the property works better with all of them in it than it would with any one replaced.

Start with the day, not the categories

Map your tenants against the hours they draw.

Coffee and breakfast pull from 6am to 10am. Lunch runs 11am to 2pm. Services — dry cleaning, nails, fitness — fill the flat middle of the afternoon. Dinner and bars carry evening. A property with four lunch tenants has one busy hour and seven dead ones, no matter how good the four are.

Weekends behave differently again. One small coffee operator reports weekend volume running roughly double weekdays, with Saturday and Sunday producing close to 44% of the week from two days. If most of a property's tenants share that pattern, parking and staffing both become weekend problems.

Complementary beats similar

Two tenants are complementary when a visit to one makes a visit to the other more likely.

A bakery and a florist share a customer and an occasion. A gym and a juice shop share a customer and a sequence. A nail salon and a blow-dry bar share a customer and an afternoon. None of them compete for the same dollar in the same moment.

Two tenants are similar when they want the same dollar at the same hour. Three sandwich shops in one center do not create a sandwich destination. They split one lunch rush three ways.

The pairings that quietly cancel out

Two tenants with identical peak hours and identical parking demand. Both underperform on the day that matters most.
A high-turnover use next to a long-dwell use. A quick-service counter beside a sit-down restaurant fights over the same spaces, and the long-dwell tenant loses.
A daily-needs anchor paired with nothing. A grocery draws traffic that only converts if there is a reason to stop on the way in or out.
Uses with conflicting hours. A daytime service next to a late-night bar means one tenant's peak is the other's dead time, and the shared frontage looks empty half the day.

Anchors create traffic. They do not convert it.

An anchor's job is to bring people to the property. Capturing them is the job of everything around it.

That is a merchandising decision, not a leasing one. The tenants nearest the anchor's entrance, the path from parking to the door, and what a customer passes on the way — all of it determines whether an anchor's traffic becomes anyone else's sales.

What to do with a mixed property

Most properties are not designed. They are accumulated, one lease at a time, by different brokers over fifteen years.

Map what you have before you fill what you have empty. Plot every tenant by daypart and by customer. The gaps are your leasing targets, and the overlaps tell you which renewals you should not be fighting hard for.

Retail Merchandising 101 covers reading a property and its customer base, tenant mix principles, and placing anchors and daily-needs tenants where they do the most good.

Retail Made