The coronavirus pandemic took a major toll on restaurants. Between forced closures early in the outbreak, operating restrictions, and strict capacity limits, many food establishments lost business in 2020, even as they attempted to switch gears and focus on outdoor dining, takeout, and delivery.
All told, the National Restaurant Association estimates that as many as 110,000 restaurants shuttered permanently in 2020. And that's hurt commercial landlords, who, until that point, relied on those tenants to pay rent.
But not all restaurants struggled throughout 2020 and the early part of 2021. Fast food chains saw an uptick in revenue, which could, from a real estate investor perspective, greatly compensate for the many dining establishments that closed their doors.
Fast food joints thrived
The pandemic changed people's dining habits in a number of ways. First, due to the economic crisis, diners sought out cheap, accessible food that worked for their newly trimmed budgets. They also sought out comfort food at a time when the world seemed to be turned upside down. And finally, many customers sought out social distancing, not wanting to take the risk of interacting with others while getting prepared food.
Fast food restaurants catered to all of those needs. Thanks to digital ordering and drive-thru lanes, customers who wanted meals on the go could obtain them effortlessly without so much as leaving their vehicles. And as far as price point goes, fast food restaurants have always catered to budget-conscious consumers.
It's not surprising, then, that for the 12-month period ended March 2021, fast food restaurants took in 70.2% of the money spent eating out, according to The NPD Group. They also accounted for 82.9% of all restaurant traffic. In fact, during that yearlong period, Americans spent almost $281.6 billion on fast food -- which also gained the 7.1% of market share by dollars that full-service restaurants lost.
The impact on real estate
Losing restaurants was a blow to commercial landlords, but the success of fast food joints could be enough to make up for it -- especially if more chains continue to expand, which is likely given the momentum they're currently enjoying.
Not only are several fast food chains planning to open more locations, but they're also rethinking their design in light of changing consumer habits. Some, for example, are building out more drive-thru lanes. Others are opening digital-only locations to cater to people who want to preorder meals, pick them up, and head along on their merry way.
These pared-down locations may not require the same square footage as full-service restaurants. But they still need to rent space, and that's where real estate investors stand to benefit.
Of course, as things improve on the pandemic front and operating restrictions are lifted for restaurants, we could see more of a shift toward full-service dining. But that doesn't mean fast food establishments will lose revenue. The beauty is that full-service restaurants and fast food places fulfill overlapping yet differing needs, and there's a good chance both will manage to coexist -- and thrive -- once the pandemic is really a thing of the past.