Outdoor Dining's Path To Permanence Still Being Charted

As Los Angeles continues to enjoy warm fall weather before temperatures start to cool, clusters of outdoor diners and drinkers have flocked to sidewalks and curbside parking spaces across the city to reap the rewards of a temporary city program.

The program, enacted during the coronavirus pandemic, has shifted the way that owners and operators of restaurant spaces think about the outdoors in relation to their business. 

Since the 2020 implementation of the city of Los Angeles’ Al Fresco program, 1,600 sidewalk dining permits have been granted and 154 restaurants in the city of LA are utilizing portions of the street for dining, according to a September Los Angeles Department of Transportation report. The program has been cited by restaurant owners and operators as a lifeline to an industry that is still very much recovering from the closures and oft-changing operating restrictions of the last year and a half. 

Gasolina Cafe chef and owner Sandra Cordero told the Los Angeles Times in July that her life was made easier by the city program, streamlining the process of adding outdoor dining spaces and getting approvals to serve alcohol outside.  

“I talk to a lot of my peers, and it’s been good for a lot of people. It’s really helped. But even in the future, we still really need this,” Cordero said. 

The city of Los Angeles’ Al Fresco plan was originally created to be a temporary solution for restaurants faced with new regulations caused by the pandemic. More than a year-and-a-half later, restaurants are still struggling to repay back rent, weather staffing shortages and generally keep their doors open, and it seems many in the industry would like to see the program made permanent.

This widespread support prompted California Gov. Gavin Newsom to extend the statewide program through the end of the year, but how and when it becomes permanent remains up in the air, as does the impact for the future of restaurant leases. 

Brokers say the program hasn't yet begun to affect the economics of restaurant leasing, but one thing is clear: Restaurants and landlords are pushing for more outdoor dining space in Los Angeles, with the inclusion of outdoor dining often serving as a deal-clincher for getting deals locked down.

CBRE’s Derrick Moore said restaurant tenants consider outdoor dining space to be vital when signing a new lease. Although sometimes not possible, tenants want it included in the lease, and are looking for assurances that as long as it is allowed by the city, it will remain an option for them. 

The temporary dining on the street or sidewalk “is very much in demand and at this point now, with nearly all restaurant deals being negotiated, restaurateurs want this to be included in the lease and they want to see it become permanent,” Moore said. 

Landlords don’t own the public space used for the program; as such, they can’t write it into a lease. That doesn’t keep tenants from asking landlords for more leeway when it comes to outdoor space, Moore said, with virtually all restaurant tenants requesting to maintain the outdoor space for the long term. 

Landlords are supportive of tenants using this public outdoor space as long as it is allowed by the city, Moore said, which is more or less the extent of what they can do at this point, since they don’t control the permitting program or the approvals that make street dining possible.

If the program were to become permanent, Moore said landlords might seek percentage rent, or a portion of the profits made from sales in the outdoor area. Some landlords are asking for that now, but are not necessarily getting it, Moore said, as it is very much a tenant-favorable market with more available spaces than there are restaurants looking to fill them. 

The inclusion of outdoor space can make or break deals at a time of high vacancy rates for restaurants in Los Angeles, Moore said. 

“Unfortunately,  there are a lot more vacant restaurant spaces,” Moore said. “If [restaurant tenants] can’t get assurances that they can have an outdoor dining area, they are moving on in search for another opportunity that does offer outdoor dining … It’s just that important.” 

The city council is still waiting for reports from a number of city departments before moving forward with a more long-term plan for outdoor dining, while a rough sketch of the financial workings to the program is detailed in the September LADOT report. 

The current version of the still-tentative fee structure would have applicants for on-street dining pay either $1,200 or $1,500 for an application review fee, with the lesser fee for existing participants in the program. Applicants would also pay fees based on the parking spot they are removing from public use, which could be as much as $9K for frequently used parking areas, according to the report. 

At retail centers where the landlord manages parking spaces and sidewalks, Coreland Cos. Partner and Senior Vice President of Brokerage Matthew Hammond said restaurant spaces with an outdoor dining component are commanding higher rents per square foot than those that do not. 

Demand for this space isn’t fading, according to Hammond, who represents three retail centers across LA and Orange counties that are going through city approvals to convert parking and landscape areas into additional outdoor dining space. 

Christine Deschaine, senior vice president at Kennedy Wilson Brokerage who has handled leases for the Culver Steps in Culver City, said despite this noticeable demand for outdoor dining, landlords the firm works with aren't currently asking for more rent for spaces with public parking available to be utilized for the Al Fresco program.

Still, location is always a factor in a restaurant’s desirability, whether that is on a street with great foot traffic or a sidewalk dining area. 

“It just really comes down to the market and how much a restaurant can pay,” Deschaine said. “We want our restaurants to stay in business.”