June 21, 2020 Dees Stribling, Bisnow National
Variable rents have emerged as another possible tool for restaurants, as landlords and business owners attempt to find some way to pay the bills during shutdowns and reopenings.
Rather than relying only on a fixed rent, variable rents also assess a percentage of sales according to a negotiated formula. They have seen some renewed success in the wider retail world and are now being considered as one option for helping restaurateurs weather the downturn.
The situation for restaurants, some of which were in trouble even before the coronavirus pandemic, is now dire. Kayak and OpenTable CEO Steve Hafner estimates that about a quarter of U.S. restaurants will not survive the pandemic.
The Independent Restaurant Coalition predicts that as many as 80% of independent restaurants will fold because of the pandemic. If those numbers are even partly correct, that would be an enormous disruption to the industry, since the National Restaurant Association estimates that there are more than 1 million restaurants nationwide. Before the pandemic, the industry employed about 15.6 million workers.
Also complicating matters for the industry is that, at least for now, workers can be hard to find for reopening, in part because of relatively generous unemployment payments or worker concern about the safety of restaurant work.
For now, variable (or percentage) rent is seen as a temporary measure to help restaurants survive, like rent forbearance or payment plans, experts say. But after the pandemic, with the possibility of government-mandated closures still fresh in mind, variable rents might become more common.