London restaurant real estate: let’s talk about how you can navigate it, work with it, and ultimately own a thriving business while being a part of it.
In 2015, London, UK was home to more than 18,000 restaurants, cafes, and pubs. We don’t need to tell you that London restaurateurs face some stiff competition, and keeping costs down is at once difficult and crucial to surviving the market.
London continues to dominate with the highest rents in the country. In 2017, London restaurants saw an average rent of £141,661/year for shell leases and £113,267/year for free of tie leases (which give renters the option to purchase at the end of their term).
While these numbers may seem high, there’s some good news: restaurant real estate prices fell by 3.4% in 2017, while the number of sites sold increased by 30%. So even though competition is still on the rise, good commercial restaurant locations may be becoming more affordable.
So how do you score an affordable spot for your London restaurant? In this article, we’ll show you:
The average cost of rent per square foot in London’s most popular neighbourhoods
Questions to ask London letting agents and brokers
What to include in a London restaurant lease
How to negotiate a London restaurant lease
How to keep costs low for your restaurant – so you can more easily afford your rent!
Choosing a Neighbourhood for Your Restaurant in London
Every London neighbourhood carries its own essence – and its own price range. Only you can know which neighbourhood will fit the vibe of your restaurant, but here’s what you need to know about the average cost of commercial rent in London’s most popular and up-and-coming neighbourhoods for restaurants.
Although it’s still in the heart of London, travellers and tourists alike turn to Chiswick for a retreat from the hustle and bustle of the streets and towards a beautiful day out.
Average commercial rent: £17–£44/square foot
While Brentford is best known as a residential neighbourhood, it’s considered one of the up-and-coming foodie scenes with the revitalization of its outdoor market.
Average commercial rent: £20–£27/square foot
Just a stone’s throw away from the Thames, Fulham provides easy access to the rest of London while retaining its own eclectic village charm.
Average commercial rent: £25–£30/square foot
You can probably count on weekend Portobello Market visitors to stop by for a meal in this neighbourhood, known for the 1999 rom-com of the same name.
Average commercial rent: £30–£50/square foot
As one of London’s most populated and affluent areas, Chelsea is known as a foodie haven in the heart of London.
Average commercial rent: £60/square foot
Visitors to Kensington come for the museums and heritage – but stay for the food.
Average commercial rent: £60/square foot
With Buckingham Palace just a stone’s throw away from Victoria Park tube station, restaurateurs in this area are sure to see a variety of tourists.
Average commercial rent: £80/square foot
There are a few things to consider when deciding on a neighbourhood, but one of the biggest is the difference between a location that’s already popular and one that’s still being developed.
Here are some things to keep in mind when you’re choosing a London neighbourhood for your restaurant:
A more established neighbourhood will cost considerably more in rent than a less developed one.
A more established neighbourhood will have a better known food scene, meaning you’ll be more likely to see visitors from other areas (but you might face higher competition).
More developed areas are likely to have higher pedestrian traffic than residential ones.
If you’re settling into a popular neighbourhood, you’ll have to tailor the feel of your restaurant to the existing food scene. Settling into a less developed area, on the other hand, means that you’ll have the chance to help create the feel of the neighbourhood – an interesting challenge for creative restaurateurs.
Finally, if you notice other restaurants opening in a less developed area, you may be getting in on the early stages of growth – and you may see an increase in visitors.
Remember: do your research on the zoning requirements and bylaws in your desired area to ensure that you’re able to open a restaurant there without any difficulties.
Working with Letting Agents and Brokers
If you’re having trouble finding the right property or just want the benefit of an expert knowledge, you’ll want to consider working with a commercial property agent.
Letting agents can help you find properties you might not otherwise have seen. They can also show prospective landlords that you’re really serious about renting their space, and share information about bylaws and other government regulations.
While their services might not come cheap, letting agents and brokers may be seen as an investment. Letting agents and brokers can help you more easily find the right property and help you negotiate a better price for your lease. They’ll also handle all the necessary paperwork – so that you can focus on building your restaurant concept instead.
To select the brokerage firm that’s right for you, here are a few questions to ask.
1. What is their fee structure?
Some agencies will charge a flat fee, whereas others will charge a percentage of the sale. Rates typically fall between 1%–2% plus taxes if you’re purchasing a property, or 10% of the agreed annual rent plus a one-off fee for a rental property. Most agencies will also charge a minimum fee up front, with the remainder charged once the sale or rental has gone through.
2. What is their area of expertise?
You’ll want to hire a brokerage firm that specializes in leisure properties. Agents that specialize in acquiring commercial properties for restaurants will be able to provide you with neighbourhood information that is relevant to you, execute structural surveys, and assess buildings for their potential as a restaurant. Local experts in London include Restaurant Property, Lewis Craig, and Davis Coffer Lyons.
3. What kind of contacts do they have?
Some letting agents will have access to contact networks that aren’t accessible to the general public, such as sites that haven’t yet been listed.
4. Can you enter into an exclusivity agreement?
An exclusivity agreement means that you’ll only be working one letting agent, which can help you save money and build a strong relationship with your agent. But be warned: you’ll need to make sure you can cancel your agreement if you’re dissatisfied with their work.
What to Include in a London Restaurant Lease
While it’s possible to purchase the space for your new restaurant, it’s less likely in a city like London where space is at a premium.
You’re most likely to rent your restaurant space in London – which means you’ll need to start thinking about what needs to be included in your lease. Here are a few things to keep in mind when you’re evaluating your lease.
Is your landlord a large firm or an individual property owner? Individual landlords may be more responsive to issues that may arise, but large firms may be more experienced. Property managers who don’t live nearby or who manage many properties may also be harder to get in touch with than those who have fewer properties.
Know your property: what type of restaurant lived in the building before yours? Was it a restaurant similar to yours? Did it fail? If so, you may want to find another location. Consider reaching out to past tenants to gain valuable business intelligence about what it was like to operate their business in the building.
Before entering into any lease, you’ll want to perform some sales projections. In 2015, the average weekly sales figure for restaurants in the UK was £18,000. Although sales in the capital are likely to be higher, you’ll want to ensure that rent your doesn’t exceed 10% of your sales.
Once you’ve properly investigated your building – and whether or not you can afford it – here’s what you should make sure is included in your lease:
Landlord’s name and contact information
Your name, company name, and contact information
A description of the premises
Start date of your lease
Duration of your lease
Amount of initial deposit and security deposit
Monthly rent amount
Method of payment
Other fees: cleaning costs, operating costs, etc.
Property tax costs
External signage policy
Description of when the landlord or property manager can enter the property
Party responsible for utility payments
Insurance requirements and cost
Maintenance and repair obligations
Rent review conditions – conditions under which you can negotiate price
Break provision (in case of unforeseen closure)
Lease reassignment terms
Energy efficiency considerations
Repairs or reconstruction obligations following a disaster (such as a fire or flood)
Promises made by the landlord (such as repairs they’ve agreed to complete)
Amount of parking spaces (if applicable)
Method of dispute mediation (for example, through litigation or arbitration in court)
Date to receive building keys (even if it’s immediately after signing the lease)
(You can also find an example of a sample lease here.)
Also note: If you’re planning on doing any renovations yourself, some landlords will require that this be included in your lease. Some buildings may also restrict the number of changes that can be made or will stipulate that the building must be returned to its original condition – so make sure you’ve defined these terms in your lease.
How to Negotiate your Restaurant Lease in London
During the negotiation process, it’s important to remember that leases are typically written by landlords – so they will be drafted in their favour.
With that in mind, don’t be shy about negotiating! If you spot something that could be changed to suit your needs, ask for it.
Here are five steps to follow when you’re negotiating a lease for your new restaurant.
1. Ask a professional for help.
We strongly recommend consulting a lawyer to review the lease before signing, especially if you aren’t working with a letting agent. Professional advice is key to ensuring you’re not missing anything and won’t run into any problems later on. For more information on your rights as a tenant, you can also review the Landlord and Tenant Act.
2. Review the length of the lease.
Given London’s high cost of rent, some restaurateurs may prefer to test the waters with a pop-up location rather than immediately committing to a long-term lease. But if you’re confident you’ll succeed, you also have the option of signing a longer lease in exchange for a lower monthly cost.
You can also negotiate to make sure you’re only paying rent when your restaurant finally opens. You can also pro-rate your rent so that your rent only increases when your sales do.
3. Discuss your renewal options.
You’ll also need to consider the renewal options. Without the option to renew at the end of your term, you could find yourself in the difficult situation of needing to move. Knowing whether you’ll be able to renew your lease – and for how long – is key to ensuring that you’re not left scrambling when your lease ends.
4. Identify the cost of other buildings in the area.
Know the average cost of rent per square foot in your chosen neighbourhood. That way you’ll be able to determine whether or not the cost is fair. If you know you’re being asked to pay too much, use industry information to negotiate a lower amount for your rent.
5. Bring the appropriate financing materials.
To lease your new restaurant, you’ll need to prove that you have enough startup capital. Bringing in bank statements and other paperwork that show your personal assets as well as your corporate ones will prove that you’re able to back up your negotiations with cold, hard cash.
How to Save on Costs for Your London Restaurant
If you’ve read this far, you know two things:
1. Leasing a restaurant in London is expensive.
2. You’ll want to keep other costs as low as possible so you can afford your lease.
Regardless of the location you’ve picked, you’ll want an ePOS that can help keep your costs as low as possible. Here are a few ways you can focus on cost savings once you’re finally up and running.
1. Reduce labour costs.
With the National Living Wage set to increase in April, you’ll want to make sure you’re keeping labour costs down. To do this, review your ePOS data so you know when you’re busiest – and when you may be scheduling too many staff. When your staff timetable is optimized for everyday rushes, special events year-over-year, and seasonal fluctuations, you’ll be able to keep staffing costs down.
2. Crosstrain your staff.
Preparing your staff to take on multiple areas of expertise can also help you streamline costs. For example, training your hostess to take on serving duties means she can be pressed into service if your floor suddenly gets a lot busier – rather than calling in another server and paying for another staff member.
3. Review your sales reports.
Know your sales reports inside and out. Know which items are most popular and which aren’t, so you can cut items that customers don’t want, cut menu items with higher ingredient costs, or raise prices on items that are super popular. You should always be tweaking your menu based on your ePOS data, which can also tell you which menu modifiers are doing well.
4. Make your staff happy.
While staff retention may not seem like a cost-saving tip on the surface, keeping employees happy means a lower turnover rate – and less time spent training new staff. By giving more shifts to your top performers and recognizing them when they do well, they’ll stick around for a long time.
Finding the perfect location for a new restaurant in London is no easy feat, particularly if you’re on a tight budget. No matter which neighbourhood you’re looking at, it’s important to know how to negotiate your lease to your advantage, what to include in it, and how to work with a letting agent who can help you get the property of your dreams. And finally, knowing how to keep costs down once you are opened will make sure you can afford your rent for years to come.
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