Restaurant chains still in expansion mode now can find a clear path to prime real estate.

The intense competition for top sites has cooled considerably in the wake of the financial crisis. Choice locations sit on the market longer, or in some cases, return to the market after other operators have backed out of deals. Those solidly performing companies with access to capital now have the opportunity to improve their real estate.

One of the few benefits to an otherwise dismal economy is that those prime locations are more affordable. And those restaurant chains that still have the ability to expand find they are a hot commodity among landlords eager to fill space.

Buffalo Wild Wings is one franchisor that enjoys its new status as a sought-after tenant. "Today, we are on the top of the list for developers," says Mo Sawda, senior vice president of franchising and development for Buffalo Wild Wings. The Minneapolis-based restaurant group has maintained its planned growth of 15 percent per year during both 2008 and 2009. The company has about 560 units and plans to add 35 corporate units and 45 franchises in 2009.

The economics of central locations in many markets make more sense for restaurant operators today. "Landlords are not asking for the top rents that they once were," says Penelope Cheroff, president of the Cheroff Group, a real estate brokerage and consulting firm in Atlanta. "Landlords are doing what they need to do to get the right tenants in place."

In the past, Class "A" sites may have been out of reach because they were too costly. So, it is an ideal time for franchisees to upgrade real estate locations by improving their visibility in a market, or perhaps landing space in a retail center that would not have even acknowledged them in the past. Regional and local operators in particular are now able to gain access to shopping centers that typically only focused on major national brands. "Demand has fallen off dramatically, and now you have a lot more landlords calling you," Cheroff says.

Filling a void

In recent years, landlords have chomped at the bit to land big national brands such as Cheesecake Factory or P.F. Chang's. Those major restaurants have earned a reputation for generating high sales volumes in the $5 million to $10 million range. They also have an established track record of drawing customer traffic to shopping centers. Yet those major brands have slowed their expansion plans in light of the economic downturn. Cheesecake Factory, for example, opened seven stores in 2008 compared to 20 in 2007.

Compounding the problem of weaker demand for space is the added supply of restaurant real estate. A number of restaurant chains, such as Bennigan's, Don Pablo's and Donatos Pizza, have filed for bankruptcy or announced store closings in recent months. "A lot of those sites that were occupied for the last 20 years are pretty good real estate, and now there are opportunities for other chains to come in and acquire those locations," says John Artope, a senior vice president at Staubach Retail in Orlando.

More affordable space

Landlords are more willing to cut deals in today's market - particularly with national brands that have good credit. Landlords not only want to fill vacant space and boost traffic at their shopping centers, but they also want a "low-risk" tenant that will provide stability in the current volatile economy, Artope notes.

Buffalo Wild Wings, for example, is able to grab locations it probably could not have afforded in the past. Over the past year, landlords have been more willing to negotiate better tenant improvement packages, and Sawda expects landlords to offer discounts in 2009 on the base rent, as well.

Buffalo Wild Wings typically targets both end cap and freestanding locations for its approximately 5,000-square-foot stores. "The current market is allowing us to be selective in what's available," Sawda says.

Franchisees now find more and better opportunities in lifestyle centers and urban projects such as at Atlantic Station in Atlanta.

In the past, rents and fees associated with space in that project were cost prohibitive for many regional and local businesses. Now landlords are willing to negotiate with those smaller tenants if it means the right fit for the center, Cheroff says. There is more pressure to reduce rents, particularly if that helps to land a tenant that will benefit the rest of the project, she adds.

Many industry experts anticipate even more restaurant fallout after what many expect to be a harsh holiday spending season. "If you're looking at a premier location, you will probably always be able to command top dollar for it," Artope says. "But there is a bigger gap between the ask and bid rent. As you see time go by, and through 2009, that gap will narrow a bit, because the market will not recover quickly."