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Over 10% of Restaurants Closed Due to COVID-19: 2 Investor Impacts


Apr 12, 2021 by Maurie Backman
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Many restaurants are still struggling to recover from the impact of the coronavirus pandemic -- a crisis that's not yet behind us. But for some eateries, the damage has already been done.

It's estimated that more than 10% of U.S. restaurants have closed their doors since the coronavirus outbreak hit in March 2020, according to food service research firm Datassential. That figure includes full-service and limited-service restaurants as well as food trucks.

Surprisingly, food trucks saw the most closures, with 22.5% shuttering. Seeing as how food trucks are a grab-and-go business, they didn't have the same limitations as actual restaurants, many of which, even today, can only welcome diners at limited capacity. But still, a lot of people shifted to remote work during the pandemic, which means food trucks probably lost out on the lunch hour rush they previously enjoyed.

But while losing food trucks isn't a terrible blow to real estate investors (if even a blow at all), losing restaurants is a different story. Here are two ways those closures could have a lasting impact.

1. Long-term vacancies

When restaurants are forced to shutter permanently, the shopping centers that once housed them lose a tenant. In a normal economy, tenants can be replaced in time. But in today's COVID-19 economy, businesses aren't exactly rushing to open, so shopping centers that lose restaurants could struggle with vacancies for months on end.

But vacancies don't just mean an absence of rental revenue -- they can also make a shopping center less appealing to both new tenants and customers. And so widespread restaurant closures could, in time, lower the value of shopping center REITs (real estate investment trusts).

2. Lower property values

Small businesses like restaurants help communities thrive. When those businesses close their doors, home and commercial property values can start to decline. And that's bad news for the people who own or invest in them.

Consider a real estate investor with an income property where tenants don't want to renew a lease. If a whole bunch of restaurants close in the area, that landlord may not manage to command the same amount of rent from incoming tenants.

Can more restaurants be saved?

The recently signed $1.9 trillion American Rescue Plan includes over $28 billion in relief for restaurants specifically. That money will be made available in grant form to restaurants that aren't part of a publicly traded company or have 20 or fewer locations.

That aid, combined with the general opening of the economy and lifting of pandemic-related restrictions, could help a lot of restaurants make it through the current crisis and stay in the game. As more Americans get vaccinated, capacity limits on restaurants will likely get lifted, and as the economy improves, diners may be in a stronger position to spend money dining out. There's reason to believe things will turn around for restaurants in the second half of 2021, but real estate investors will have to hope that struggling establishments can hang on until things take a notable turn for the better.

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