The coronavirus crisis has upended the U.S. economy, hammering businesses large and small. But if there's one area that's been particularly hard-hit, it's the restaurant industry.
An estimated 87% of New York City restaurants and bars were unable to pay their rent in full during the month of August, according to a new survey by the New York City Hospitality Alliance. Meanwhile, one-third of restaurants didn't pay their landlords rent at all in August. That means commercial landlords, who have their own mortgages and expenses to cover, have been struggling, too. Talk about a no-win situation.
Restaurants have been dealt a major blow
It's not surprising that New York restaurants have been sorely lacking in revenue. When the pandemic first hit U.S. soil, New York was its epicenter. As such, all nonessential city businesses were forced to close down, and restaurants were barred from welcoming customers for months.
Some eateries managed to fall back on a takeout and food delivery model -- those options were allowed in the course of the pandemic. But for many dining establishments, that's hardly been a consolation prize. This especially holds true for any restaurant categorized as a fine dining establishment serving high-end cuisine -- those that rely on hefty markups and expensive alcohol purchases to keep up with their rent. After all, it's one thing for patrons of a local pizza place to bring their pies home rather than dine in, but many diners haven't been willing to order $19 cocktails and $42 entrees to go. As such, the takeout and delivery model hasn't been enough for many New York City restaurants to sustain the revenue needed to cover their already expensive rent.
Of course, over the summer, restaurants were given the green light to offer outdoor dining. But in New York City, that's been hard to pull off. Outdoor dining only brings in a fraction of the revenue full-capacity indoor dining generates, and given that Manhattan in particular isn't exactly known for its wide open spaces, outdoor seating has hardly been abundant.
Also, in the coming weeks, weather will be a challenge as temperatures turn cool. And while some establishments may invest in heating equipment to continue letting customers dine outdoors, there are regulations and restrictions as to which devices can be used and how they're set up. But even if creative heating solutions allow outdoor dining to continue in New York City a while longer, that option will be off the table come October 31, unless it's extended.
Now that said, restaurants will be allowed to offer indoor dining starting on Sept. 30, albeit at 25% capacity. But that, too, won't take the place of full-capacity dining, and to some degree, the only thing it might do is replace the revenue generated by outdoor dining. That assumes, of course, that New York City doesn't pull the plug on indoor dining after it starts -- which is a distinct possibility, especially if COVID-19 cases start to tick upward in conjunction with colder weather. Let's not forget that the virus is more likely to spread indoors, and since it's impossible to eat dinner in a mask, restaurants are still a fairly risky proposition.
What this means for commercial landlords
All of this puts commercial landlords in a tough spot. On the one hand, it certainly pays for them to negotiate with the restaurant owners they rent to -- perhaps lower their rent temporarily, or set up more flexible payment plans. On the other hand, landlords have their own expenses to contend with and may only be able to afford so much of a hit.
Unfortunately, it could be a while until the New York City restaurant scene picks back up, and until there's an effective COVID-19 vaccine, dining establishments will likely continue to struggle. It's in landlords' best interest to work with restaurant tenants to get through the ongoing crisis, since widespread closures could lead to a vacancy crisis. And the only thing worse than collecting less rent is collecting absolutely none at all.