It seems to be “a tale of two cities” as far as London’s restaurant property market is concerned — or perhaps even three.
Keen readers of our previous blogs and press releases will remember that we’ve been recently been commenting on a strong contrast between the fates of the higher end market and the fast-casual end of London’s restaurant property market.
Operators in the latter segment have been squeezed by utility bills, labour costs and food costs at one end and by rising inflation hurting the purchasing power of their customer base at the other. The very high-end of the market has seemed to be relatively immune, however. Restaurants in areas like Mayfair seem to have been able to raise prices to deal with these impacts on their margins with little noticeable drop-off in custom.
But now we at leading London restaurant property broker Dean Gambles & Co are noticing another counter-intuitive trend in the capital’s restaurant property scene that doesn’t entirely align with either one of these. It’s a trend that we didn’t expect to see – yet at least — and it’s yet another intriguing development in London’s always-fascinating restaurant property market.
Key money is back
We’re talking about the return of premiums – otherwise known as “key money” – a payment made to a restaurant operator to purchase their lease.
Premiums had largely disappeared from Central London’s restaurant property market during the Covid period when few deals were getting done and operators who were selling generally wanted to offload sites as quickly as possible.
Now they’re back. We recently brokered the sale of the Crazy Pizza’s site in Marylebone with a six-figure premium. We also have another site where a deal is going through with a £45,000 premium – Big Mamma group’s Ladbroke Grove site. Big Mamma group has a number of successful restaurants throughout London. The group opened that site as a proof of concept for a takeaway pizza shop and is now closing the site.
Aside from these two examples Dean Gambles & Co is also handling several deal still subject to confidentiality on commercial grounds where premiums are under discussion.
A counter-intuitive trend
Our CEO, Dean Gambles, said: “We are surprised at the resurgence of premiums because it appears on the face of it to be quite contrary to what else is going on.
“Given the overall economic climate, you would expect to see operators collapsing. Instead, we’re seeing increased demand for good sites.”
The return of premiums is somewhat counter-intuitive given some other market trends such as rising utility bills, labour costs and food costs and tightened consumer spending.
“It looks like what’s causing the re-emergence of key money is pent up demand from throughout the pandemic where people were unable to or didn’t want to transact,” says Dean.
Above all, the return of the premium seems to be testament to the often-unpredictable resilience of London’s world-leading restaurant scene.
“London always seems to be kind of a safe haven for investors,” he notes.
“It’s a mature market and a safe place to put your money. And the food scene is so exciting and diverse that it’s attracting operators to open even in the face of an economic headwind.”
For market-watchers like the team at Dean Gambles & Co this is an interesting development. We’re still analysing the deals that are coming through to see if any more specific trends occur – but at the moment it seems to be happening irrespective of exact location.
One possibility, Dean believes, is that fitted restaurants sites as opposed to empty sites are more likely to attract premiums at this time. Given that we’re seeing the new deals happen outside Mayfair it appears the reappearance of premiums isn’t only limited to the very highest-end parts of London.
But it’s early days and we expect to have more information on this in the future. Watch this space!
Call Dean Gambles & Co now for information about Central London restaurant property.