Franchising Today - Summer 2016 - 18
Column by Brian Bern and Samantha Berk
Corporate-owned retailers are outbidding
small franchise groups on many high-priced
new development opportunities.
FRANCHISEES MUST BE PREPARED TO NAVIGATE A VASTLY DIFFERENT REAL ESTATE MARKET THAN
THEY DID 12 OR 18 MONTHS AGO.
recession. Now, the best locations
rental rates and increased competition from corporate tenants and new
concepts are squeezing franchisees
out of prime locations. But franchisees can navigate these critical stages
of the real estate cycle by acting fast,
demonstrating value and negotiating
As late as 2014, franchisees had
many more site choices, as the country continued to recover from the
at class A and B properties are all but
gone, leaving either less-attractive
sites or expensive infill redevelopments. Franchise groups exploring
new developments are finding higher
costs, as developers pass on increased
land and construction costs down to
tenants. These conditions have put
rents above where they stood before
Regardless of the concept, it is
often hard to justify paying these
high rents, and for franchisees, it is
especially difficult. A large, corporate-backed restaurant might be able
to float a location with unreasonably
high occupancy costs, but a franchisee typically cannot.
Franchisees are finding themselves
in greater competition for space.
Quick-service restaurants, haircut
concepts, cell phone stores and others are continuing to push into top