Did Someone Say Rent Crisis?

How about a 25% increase? Sound good?

Imagine if that was the revenue stream for your business or your EBITDA. Imagine if you could increase your teams’ earnings by that much.

Unfortunately, it seems that this figure is actually what Landlords are using as a benchmark for increases following rent reviews.

The UK restaurant sector has increased by nearly 40% over the last five years and the demand for property is surging. A licensed restaurant or mobile food offer has opened on average every day in London over the last three years. Landlords know that we want to open businesses and also understand that our first consideration is often location, leaving them holding the Ace card.

I have recently looked at various restaurant opportunities, with rents ranging from £30-£100 per square foot. When working on the financial projections for the new business, I am already thinking about food cost increases that will hurt margins, wages increasing 6% per year with the National Living Wage and a looming rates hike. I haven’t even got to tronc or service charge.

When I then try and forecast a revenue stream, I, of course, positively anticipate growth due to the sure-fire success of my business. At the back of my mind is also the fact the interest rate hasn’t moved for five years and has to increase at some point (hitting all those mortgage payers). In three to five years’ time, I’ll have a rent review and even if my Landlord and I are happy with each other, I know this will go up, as that’s what happens.

Bearing in mind I am trying to open in London, there is a demographic change coming that could swing either way. Crossrail could deliver a new market which is able to hit central London and enjoy the fruits of my labour. Or will Sheffield, Reading and Abbey Wood become the new Soho, Covent Garden and Mayfair? These new Crossrail commuters, enjoying an average one-bed flat price of £200k in those areas, will not be enjoying increased mortgage rates and high travel costs. Will they be looking for the West End restaurant experience or will they be beetling home to their local options?

We need diversity and for every Cote, KFC and Sexy Fish or Chiltern FH, there must room for the small Independent restaurateurs. We are the diversity.

Seb Fogg
SCF Consultants Ltd

Big Flavour