Is restaurant property investing at risk?

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Question

According to accountancy group UHY Hacker Young, a third of Britain’s largest restaurant groups are not making a profit. This is blamed on the rising costs of wages, ingredients, business rates, and there is high competition in the mid-range restaurant sector.

Jamie’s Italian, Strada and Byron have announced

restaurant closures recently.

Many restaurant groups have asked landlords for rent reductions to stay profitable.

Not all is negative in the restaurant business. Two-thirds of restaurant groups are still making a profit, and there are many independent restaurants doing well. Deliveroo is boosting restaurant takings by providing a home delivery service. High-end restaurants that have previously not been interested in home deliveries are working with Deliveroo because they make it easy to add a delivery service to their business.

There have been a number of dark restaurants opening which are basically just kitchens that supply food to takeaway agencies. They are often housed in small industrial units.

There has also been a growth in street food markets and temporary pop up restaurants.

Although the headlines suggest that the restaurant business has gone in reverse, this business sector is far from dying. Most landlords are not reducing their rents, so there is still money to be made from renting commercial property to the catering trade. Dark kitchens are looking to rent industrial units suitable for converting into catering units.

Using commercial mortgages to purchase commercial property suitable for bars, cafes and restaurants is not without risk, but property in the right location and rented to a successful company can provide reasonable rent yields.

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