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The Unlikely New Real-Estate Darling: Restaurants

Low unemployment, rising wages and lifestyles of millennials have increased dining-away-from-home spending

Customers enjoy lunch at Revelie Luncheonette in New York City. Levi Mandel for The Wall Street Journal


Property owners have long seen restaurants as risky tenants with a high rate of failure. Now, with Americans dining out more than ever, the restaurant business is emerging as the hottest corner of retail real estate. 

Food services accounted for more than 19% of all retail leases last year, rising in recent years to the highest proportion for any category since data firm CoStar Group began tracking the statistic in 2007.

The uptick reflects how Americans are spending more time and money at restaurants, from fine-dining hot spots to fast-casual chains. Low unemployment, rising wages, the ascent of “foodie culture” and millennials’ tendency to marry and have children later than previous generations have likely contributed to increased restaurant spending in recent years, analysts say. Single households are less likely to grocery shop than families.


It is a far cry from the depths of the pandemic, when tens of thousands of restaurants permanently closed. Four years later, robust restaurant leasing has helped power the retail-real-estate sector to its strongest position in years.

“It has definitely come as a surprise,” said Brandon Svec, national director of U.S. retail analytics for CoStar. “We wouldn’t have seen as strong of a retail recovery without it.” 

The average household spent nearly 53% of its food budget on food away from home last year, a record-high proportion and up 10 percentage points from 2003, according to the U.S. Agriculture Department’s Economic Research Service. 

Total restaurant sales have never been higher. They are on track to top $1.1 trillion this year, a 5.4% increase from 2023’s record-high level, according to the National Restaurant Association, an industry group. 


Money spent on dining out has been rising for years. In 2018, the average household spent slightly more money dining out for the first time since the USDA started tracking the statistics in 1997. Restaurant spending tanked in 2020 but quickly rebounded as establishments reopened and infection fears faded.

Bailey Mack, a 32-year-old resident of Louisville, Ky., who works in business development, almost always ate home-cooked dinners growing up. Restaurants were for special occasions like birthdays or when family from out of town visited.

Many restaurants depended on takeout and delivery sales during the pandemic, when large-scale gatherings were prohibited. Photo: Olivia Obineme/Bloomberg News

As an adult, she still considered dining out an expensive treat. Then the pandemic hit. When restaurants reopened, Mack met with friends at her neighborhood burger-and-fries joint and went on dates with her now-husband to Indian and Asian restaurants. 

“The stimulus checks came through, and there were all these restaurants around me that I’d always wanted to try,” she said. “It’s about connecting with people through food.”


Restaurant rents and occupancy levels have been rising across the U.S. in recent years. Retail-real-estate firm Pine Tree, for one, said it is signing new restaurant tenants at rents as much as 10% higher than prepandemic levels.

Chipotle Mexican Grill, one of the fastest-growing restaurant chains, has been able to capitalize on the dining-out trend. The company opened 271 new restaurants last year—the highest annual total in company history—and plans to add about 300 more this year. 

Most of Chipotle’s new locations include drive-through lanes where customers who have ordered ahead on the company’s app can pick up their food without leaving their cars. After skyrocketing during the pandemic, digital orders have moderated and now account for about 37% of total sales, said Chris Brandt, chief brand officer for Chipotle. 

“Recently, the in-store visits have come roaring back,” Brandt said. “People like the customization, they like to go down the line,” he added, referring to the burrito-assembly process.


Chipotle Mexican Grill has been able to capitalize on the dining-out trend by opening more locations. Photo: Angus Mordant/Bloomberg News

For years, property owners were wary of food tenants. Building out restaurant spaces is an expensive cost often borne by landlords. Many establishments fail early on.

But an increase in creditworthy chains coupled with data showing that food establishments boost foot traffic to nearby businesses have made landlords eager to sign restaurant leases. 

“It’s definitely one of the darlings of our industry right now,” said Matt Lougee, president, capital markets, for Pine Tree, which has seen average sales volumes among its fast-casual restaurant tenants increase 6% annually since 2019, about double the historic rate of increase. 


Inflation and higher menu prices have undoubtedly juiced restaurant sales in recent years. But Lougee said customer demand is also up as hybrid work gives suburban residents more flexibility to run errands and grab lunch during the workday. 


How does restaurant spending fit into your budget for food? Join the conversation below.

It isn’t all good news in the restaurant industry. Rising payroll and ingredient costs are squeezing profit margins, especially for independent operators. Seafood chain Red Lobster plans to close hundreds of stores after declaring bankruptcy, and McDonald’s sales growth has slowed as lower-income consumers pull back on spending. 

Still, these recent challenges aren’t an indication that the broader restaurant industry is headed for a significant slowdown, said Sara Senatore, senior analyst with Bank of America. McDonald’s sales volumes are still more than 30% higher than they were pre-Covid, and Americans continue to spend more money at restaurants. 

“You have this long-term trend, which is ongoing, even now despite the fact that consumer tailwinds are a little less robust,” Senatore said. “The industry as a whole seems to be growing.” 

Write to Kate King at kate.king@wsj.com


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Appeared in the June 11, 2024, print edition as 'Restaurants Become New Real-Estate Darling'.