Retail · Leases
Second-Generation Restaurant Space: What the Hood Is Worth
A former restaurant is either the cheapest space you will ever lease or an expensive shell with grease in the walls.
Restaurant space trades on a single question: does the infrastructure still work? Get that right and second-generation space is the best value in retail. Get it wrong and you have leased an expensive shell.
What actually costs money
A commercial kitchen build-out from raw space runs well into six figures before equipment. The expensive components, in rough order:
The hood and make-up air. A Type I hood with fire suppression and matched make-up air is the single largest line, and it is not something a tenant can defer.
Grease interception. Under-sink units are cheap. An in-ground grease trap sized for a full kitchen, with the plumbing to reach it, is not, and many municipalities have tightened requirements since the original build.
Power and gas. Kitchen loads are heavy. Upgrading a service, or bringing gas to a space that never had it, can exceed the hood.
Venting and grease containment. The reason a former restaurant is worth more than a former retail bay of the same size is that these already exist and are already permitted.
Why landlords should care
Because it determines your tenant pool and therefore your downtime. A second-generation restaurant space with a working hood can be leased to any restaurant operator. Strip the equipment out, or let the permits lapse, and you are back to leasing a shell to whoever will take it.
The practical implication at lease expiry: think hard before you let a departing restaurant tenant remove the infrastructure. A removal clause you insisted on at signing can cost you two hundred thousand dollars of value on the way out.
Underwriting a restaurant vacancy
Get a mechanical inspection before you set your allowance. The gap between "hood is serviceable" and "hood must be replaced" is often larger than every other line in your budget combined, and it also swings your downtime by months, because equipment lead times and health department sign-off do not compress.
Price the allowance properly: net effective rent shows what a heavy TI package does to the deal you thought you were signing.
Related notes
How to read this. These are working notes. Figures come from public reporting and from the models on this site, and market conditions change, check anything time-sensitive against the source before you rely on it. Nothing here is investment, tax or legal advice, and no note is a substitute for diligence on a specific property.
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