Atlanta Restaurant Bubble: Yes or No?

Word on the street suggests an Atlanta restaurant bubble exists even as the metro area experiences solid population growth, people cook less and many spend disposable income to dine out.

Within these macro trends is continued retail development anchored by new restaurant concepts which impacts the sales of existing stores even while overall sales grow. Also affecting the industry are delivery services such as UBER Eats, online sales of prepared meals, and growing competition by supermarkets offering prepared meals.

What’s the Worry?

A recent Bisnow article suggests the Atlanta restaurant bubble is indeed happening. According to a NetFinancial report, “[R]estauranteurs are still seeing sales volume growth overall, with a 4% increase in the first quarter compared to 2017, [but]…more than half of the restaurants surveyed (103 non-franchised restaurants) experienced negative sales in the first quarter.”

In a recent BisNow panel, RO Hospitality founder Ryan Pernice said even good restaurants with good operators may close due to uncontrollable reasons, like when a Ponce City Market opens nearby with an abundance of dining options.

Restaurants Are Challenging. Period.

There’s a handful of reasons why the restaurant business is tough. Build-out is very expensive. Good help is hard to secure. Chefs know their food, but may not possess business sense. It’s a highly-regulated field. Rising construction costs paired with spiking labor costs also make the list, according to BisNow.

Surviving the Atlanta Restaurant Bubble

How can restaurants survive in Atlanta’s competitive field? Here’s what I think:

• Secure experienced + well-capitalized operators. (Many experienced operators now own multiple concepts.)
• Ensure the concept + price point match the location.
• Select concepts that are NOT trend-dependent.

On the same Bisnow panel, Fifth Group Restaurants Founding Partner Robby Kukler suggests opening “stripped-down eateries.” He says, “We’re seeing restaurants that are actually being built with less finishes and a little more casual,” claiming this shift is okay with current diners.

Looking to Invest?

If you are considering a restaurant property as an investment, I have some advice:

• Take a hard look at the operator.
• Seek a restaurant in a desirable location or neighborhood. You want a place where if one tenant leaves, another is eager to take her place.
• Ensure rent is at or below market. Having to re-tenant at a lower rent significantly diminishes returns.
• Research the restaurant concept. Is it already overflooded in the area?

Stan’s Takeaway

I think the Atlanta restaurant bubble is real—the city probably has many more restaurants than it needs. Not many areas are underserved.

We still invest in restaurant properties, but the operator needs to be exceptional; the sales/rent ratio needs to be within strict guidelines; and the potential for new restaurants in the neighborhood needs to be limited.

What’s your take on the current Atlanta restaurant scene?