Restaurateurs Are ‘Circling The Market Like Vultures’ In Sun Belt Cities Where Space Is Scarce

One broker boasts of negotiating two bidding wars for restaurant space in just the last three weeks. A landlord says he has seven groups either trading letters of intent or touring one prime second-generation location in Houston's Inner Loop. And five brands with the same concept are vying for a single open spot in one group’s development.

Four years after the pandemic arrived and wiped out an estimated 110,000 eating and drinking establishments and 2.5 million industry jobs, the restaurant industry in Sun Belt cities like Houston is back big.

And with the resurgence has come a battle for the best locations, with landlords in the driver seats as an increasingly international group of operators clamors to get in while the getting is good.

“It’s a good time to be a landlord, in that you have lots of selection for your good spaces,” NewQuest Properties co-founder and Managing Partner Jay Sears said of a hotly competitive Houston food and beverage market that is seeing a spike in global interest as high interest rates and construction costs limit new development. 

The growth of Houston and other Sun Belt markets’ restaurant industries defies the national norm, according to data JLL provided to Bisnow.

Comparing the gap in numbers of seated diners between January 2019 and January 2023, well-known food cities like New York and Los Angeles were still grappling with decreases of 30.2% and 10.2%, respectively. San Francisco was reeling from a 44.8% drop.

Meanwhile, Houston enjoyed a 9.3% increase in seated diners since before the pandemic. Other Sun Belt cities fared even better: Phoenix posted a 12.6% increase, Austin jumped 23.1% and Miami's numbers leapfrogged 50.4% over 2019, according to JLL's analysis of OpenTable data.

Warmer climates and fewer pandemic restrictions helped buoy restaurant business in these markets, according to the JLL report.

“If you look at closures in places like San Francisco versus openings in places like Houston, it’s really night and day,” said Emily Durham, Houston-based senior vice president of food and beverage advisory for JLL.

Little to no pandemic-era restrictions roused these markets' popularity and appeal, especially to international restaurateurs, Durham said. The tighter business restrictions are, the more likely restaurants are to fail, boosting Houston's ranking in a risk analysis, she said.

But expanding concepts are also attracted to diversity, which markets like Houston serve up on a platter, Durham said.

She cited South African chicken restaurant Nando’s Peri Peri and Germany-based Coffee Fellows as examples of overseas operators seeking growth in the Lone Star State. Nando’s opened its first Texas location in Uptown in August and has since opened another location in Katy.

The 230-store Coffee Fellows chain has only two stores in North America, one in Bellaire and one in Katy. The Katy outpost is Coffee Fellows’ first drive-thru location as it seeks to appeal to the U.S. market, which is less walkable than most of Europe. 

NewQuest Development Partner Heather Nguyen has curated tenants for Asian-focused shopping centers for the past decade. She returned last month from a trip to Tokyo, Taiwan and Korea, meeting with 12 to 15 potential tenants in each place, she said.

“When I go and meet with these companies, a lot of times they want to go to California, New York,” Heather Nguyen said. “But when I talk to them about how business-friendly Texas is and the growth that we're seeing … it gives them a different perspective.” 

Working with the clients this way helps set the concepts up for long-term success and growth.

“It’s a new life cycle for them,” Nguyen said. 

But getting into a space is a different matter.

Houston’s retail occupancy was at a record-high 94.7% in the fourth quarter, according to a CBRE report. The Inner Loop submarket only had 4.3% vacancy, while desirable subsections like River Oaks had vacancy as low as 3%. 

Meanwhile, only 3.1M SF of retail construction delivered in 2023, which was largely driven by the 1.4M SF Manvel Town Center, well outside the urban core. 

“You can take a guess what that means for second-generation restaurant vacancy in River Oaks or somewhere else inside the loop,” Durham said. “You see a lot of deals getting done off-market and a lot of people waiting longer than they used to.” 

Thomas Nguyen, restaurant practice leader in CBRE’s Houston office, said he has been in two bidding wars for restaurants lately. One was three weeks ago and one is ongoing, he said, declining to share details since the deals aren't done.

“It’s very difficult right now. It’s very competitive,” Thomas Nguyen said. “One, there’s not a lot of options. Two, the options don’t even get on the market.”

Brokers are having to leverage relationships with landlords and listing brokers to get word of openings as soon as a restaurant thinks of closing down, he said.

Some landlords are even monitoring tenants’ sales to analyze the potential of getting units back for re-lease, said Mike Pittman II, Houston-based director for Cushman & Wakefield. A listing broker might call, without any marketing materials, to put out feelers based on a brief description of the property. This could just be “the 7K SF former Fuddruckers,” he said. 

“For those who have been circling the market like vultures, waiting for the right opportunity to pounce on, those are sometimes how deals are getting done,” Pittman said.

Landlords are able to be picky about the restaurants that come into their centers, getting a feel for their concepts and whether they will match the vibe of the property. Brokers can no longer just show up with a tenant who is willing to pay the rent and find a landlord who won’t ask more questions, Pittman said.

“Those days, for the competitive sites, are long gone,” he said. “Many times, even if you pay more than the asking rent, if you’re not on brand with the project, you’re going to have a hard time getting it.” 

Pittman was part of the team representing Shoo Loong Kan, a Singapore-based restaurant group specializing in hot pot cuisine, in leasing space at NewQuest’s West on West shopping center in Houston and Carrollton Town Center in Carrollton. Shoo Loong Kan will open 6K SF locations in each center, representing its first corporate locations in Texas.

NewQuest wanted to ensure that Shoo Loong Kan’s planned build-out would be up to par with the rest of West on West’s redevelopment, Pittman said. In addition to the economics of the deal, Cushman & Wakefield showed renderings of the interior, depictions of signage and examples of planned upgrades to help secure a spot, he said.

“There was a lot of competition to get into those centers,” he said. 

There are about five different hot pot concepts vying to get into NewQuest projects, NewQuest’s Sears said. To ensure they were making the right choice in this case, Sears and Heather Nguyen flew to Flushing, New York, sampled the food and met the owners from China.

“We sample every concept that goes into our Asian centers,” Sears said.

The last three to five years have brought heightened interest from Asian concepts, in particular, especially as countries like China, Japan and Korea experience negative population growth, Sears said. 

The Houston-area population grew 1.9% from 2022 to 2023, and job growth has followed. Retail goods and related service sectors, including bars and restaurants, now represent the largest share of Houston jobs at nearly 800,000, according to CBRE.

“It’s the population growth, the jobs,” Evergreen Commercial Realty President Lilly Golden said of Houston’s restaurant appeal. “Retail follows rooftops. The affordability, the lack of government regulation, so they can get their deals done. We’re not land-constrained.” 

Houston also has a diverse, educated population that is open to different cuisines, Thomas Nguyen said.

“If you’re a group from Asia, for example, you want to come to this market,” he said. “Why in the world would you want to come anywhere else but Texas, or Houston, in particular?” 

All of the interest has created a fun environment, Sears said, though he hopes interest rates will come down in tandem with construction costs so more retail spaces can be built.   

“Our tenant reps, they’re struggling because they have a lot of concepts they have to take care of. Everybody’s scrambling for good space,” Sears said. “For us, as a landlord, it’s great. For them it’s like, ‘Oh, man.’”