It's fair to say that 2020 was a brutal year for restaurants. When the coronavirus outbreak first erupted, many dining establishments were forced to turn away guests for in-person service and pivot to takeout and delivery instead. That shift may have worked reasonably well for fast casual restaurants, but higher-end dining spots got slammed.
Once restaurants got the green light to welcome back diners, they were forced to do so in a limited capacity. And it wasn't until things really improved on the pandemic front that those restrictions were lifted.
Earlier this year, it seemed as though restaurants might be poised for a recovery. COVID-19 cases were dropping, the economy was improving, and rising vaccination rates were making more diners comfortable with the idea of eating inside a restaurant again. In fact, the demand for restaurant meals was so high at one point that dining establishments couldn't hire enough staff or procure enough product to keep up.
But then the delta variant took over. And it now has the potential to create huge setbacks for restaurants that were inching closer to a full recovery.
Dining is already down in some states
It's estimated that 90,000 U.S. food establishments have closed on a permanent or long-term basis since the start of the pandemic, reports the National Restaurant Association. And now, the Delta variant is keeping more people away from restaurants.
During the first week of August, restaurant reservations on booking site OpenTable fell 20% below the same point in 2019 in five states with high levels of COVID-19 transmission -- Alabama, Idaho, Louisiana, Mississippi, and Wyoming. That represents a huge shift from early July, when dining reservations in those states sat at 10% above 2019 levels.
Not shockingly, in early August, Florida also saw a big drop in restaurant reservations. The Sunshine State has experienced a massive surge in COVID-19 cases this month.
All of this is clearly bad news for restaurants, but it's also potentially bad news for real estate investors. For one thing, if patrons begin abandoning restaurants, more dining establishments will be at risk of closing. If that happens, commercial landlords will risk losing rental income and having vacancies to fill.
Furthermore, when restaurants close, it can cause the value of local properties to decline. That's bad for homeowners as well as those invested in commercial properties. And while a one-off restaurant closure may not have much of an impact, a series of closures within the same neighborhood could be catastrophic.
Of course, if vaccination rates start to improve in high-risk states, COVID-19 numbers could start to drop. And that could, in turn, get people back into restaurants. But real estate investors with properties in the aforementioned states may want to keep tabs on the evolving situation -- and hope that things improve to the point where more restaurants aren't taken out by the pandemic.
In July, about 40% of small restaurant owners couldn't cover their rent, according to Alignable. Now that dining reservations are down, that percentage could climb -- substantially -- by the time August comes to an end.