Leasing a Restaurant – Why Second-Generation Space is a SMART Choice

Launching any new restaurant comes with its share of challenges. If you add building from scratch into the mix, the complexities of permitting, hiring contractors and building out a space can add months to a timeline for going to market. That’s why choosing the right location should always include the SMART choice to look at second generation space.

What is Second-Generation Space?

Second-generation restaurant space refers to previously occupied restaurant locations that are now available for lease. These spaces are already equipped with essential infrastructure such as commercial kitchens, hoods with Ansul fire suppression systems, grease traps, and layouts that consider both the front and back of the house. Unlike raw or "first-generation" spaces, second-generation spaces have been used for food service operations before, making them more convenient and cost-effective for new tenants to move in and start operating with minimal renovations.

For many restaurateurs, second-generation restaurant space presents a golden opportunity to save time, money, and effort while hitting the ground running. Using the SMART framework, let’s explore why second-generation space is a truly intelligent choice.

S – Savings

Leasing second-generation space delivers significant cost savings. Unlike new builds, these spaces often come equipped with essential infrastructure like kitchen hoods, grease traps, and walk-in coolers. This eliminates the need for costly construction or installation of equipment. This critical infrastructure would otherwise add thousands to your cost. Landlords may be willing to negotiate on these spaces if there is no need to TI or tenant improvement money since they may have already invested in the first tenant for the space.

Cost Breakdown Comparison

• Building out a new restaurant space can cost anywhere from $150 to $300 per square foot, depending on the level of customization and infrastructure needed.
• In contrast, updating a second-generation space may cost as little as $50 per square foot for cosmetic changes and branding.

Compare this to launching a restaurant from scratch. With costs for construction, equipment, and compliance adding up quickly, the financial burden often becomes a major barrier for new restaurant owners. Second-generation restaurant spaces solve this problem by providing pre-installed features that dramatically reduce build-out expenses.

What You’ll Save

• Kitchen Equipment: Commercial hoods, grease traps, commercial refrigeration like walk in coolers and walk in freezers are built in items that are not removed when a tenant vacates the space. These items can cost tens of thousands of dollars to install in a new space.
• Plumbing and Ventilation: Restaurants require specialized systems, such as additional tonnage of HVAC, grease traps and vent hoods, which can be prohibitively expensive to install from scratch.
• Furniture and Fixtures: In many cases, second-generation spaces include tables, chairs, bar areas, and lighting that can be repurposed with minor cosmetic updates.

To make the most of your investment, evaluate the condition of the equipment and fixtures in the space. Even if some updates are needed, starting with an existing setup is far more economical than building from the ground up.

M – Market-Ready

Second-generation spaces are already designed for food service, making them market-ready with little to no major renovations required. Layouts that include commercial kitchens, restrooms, and dining areas allow restaurateurs to focus on branding and menu development rather than construction. This "plug-and-play" option minimizes downtime, enabling operators to bring concepts to life faster.

Location is a key determinant of a restaurant’s success, and second-generation spaces often come with built-in advantages. These spaces are frequently situated in areas with established customer bases, such as shopping centers, downtown districts, or bustling neighborhoods.

Why Location Matters

• Existing Recognition: Even if the previous tenant had a different concept, the traffic pattern is established, and the public is familiar with the location as a dining destination.
• Complementary Businesses: Many second-generation spaces are located near retail stores, offices, or entertainment venues that generate consistent foot traffic.
• Prime Demographics: The surrounding area, including density of housing, often caters to an audience for restaurants, whether it’s families, professionals, or tourists.

Example of Location Advantages

A casual dining restaurant leased a second-generation space near a busy college campus. The combination of pre-existing traffic and a ready-to-go kitchen allowed the owners to focus on menu innovation and customer service, attracting a loyal student following within weeks of opening.

A – Accessible

Location is everything in the restaurant business, and second-generation spaces are often situated in high-traffic areas with established customer bases. Whether in busy shopping centers, downtown districts, or growing suburbs, these spaces already have the advantage of visibility and accessibility. Restaurateurs can capitalize on existing foot traffic and customer familiarity with the location.

The other key to accessibility is the timeline to open. The restaurant industry evolves rapidly. Trends such as delivery, sustainability, and unique dining experiences are constantly adapting to customer expectations. Operators must deliver on required changes to remain competitive. Leasing a second-generation restaurant space aligns perfectly with this need for agility, offering flexibility and scalability that other options often lack.

By choosing a second-generation space, restaurateurs can focus on what truly matters—creating exceptional dining experiences, building a loyal customer base, and ensuring operational excellence. The time and cost savings associated with these spaces enable owners to allocate resources more effectively, ensuring that their restaurants are positioned for long-term success.

R – Risk-Reduction

Opting for a second-generation space significantly reduces the risk involved in starting a restaurant. These spaces often have a proven track record of supporting successful operations. Restaurateurs can assess the previous tenant’s success and challenges to make informed decisions about their own venture. Skipping the uncertainty of build-out costs or unexpected delays also lowers overall risk.

The restaurant industry is known for its challenges, and reducing financial risk is critical for long-term success. Leasing a second-generation space lowers your upfront investment, freeing up resources to focus on other essential areas.

How Second-Generation Spaces Lower Risk

• Reduced Capital Requirements: By minimizing build-out and equipment costs, you reduce the overall capital needed to launch your restaurant.
• Testing Concepts: If you’re experimenting with a new menu or brand, leasing a second-generation space offers an affordable way to test your concept without a long-term financial commitment.
• Established Locations: Many second-generation spaces are in proven markets, giving you the advantage of existing foot traffic and customer familiarity.
  
  

Case Study: Risk Mitigation in Action

A first-time restaurant owner approached We Sell Restaurants and we ultimately worked with him to lease a second-generation space in a high-traffic shopping plaza. He was well capitalized and ready to invest the roughly $750,000 he had been quoted by multiple contractors to construct his concept. By acquiring the second-generation space, leveraging the existing infrastructure and location benefits, he was able to break even within the first six months, significantly reducing the financial exposure. The cost to acquire the existing location was under $150,000 and he spent less than $25,000 on updates. That reduced their capital needs by over $575,000 freeing up to get a second location up and running in short order.

T – Time-Efficient

Speed to market is critical in the competitive restaurant industry. Second-generation spaces allow operators to open faster by avoiding the lengthy timelines associated with new construction. The ability to move in and start serving customers sooner means restaurateurs can generate revenue earlier and focus on growing their business. It also means you can beat a competitor to market and establish a foothold in the community first. .

In the restaurant business, timing is everything. The sooner you can open your doors, the sooner you start generating revenue and building your customer base. Leasing a second-generation space allows you to bypass much of the time-consuming preparation involved in opening a new restaurant.

Key Time-Saving Benefits

• Pre-Approved Zoning: These spaces are already zoned for restaurant use, eliminating delays associated with rezoning or change-of-use permits.
• Existing Infrastructure: With kitchen systems, bathrooms, and dining areas already in place, much of the time-consuming work is done for you.
• Streamlined Permitting Process: Since the space has already operated as a restaurant, you’re less likely to encounter obstacles during the permitting process.
• Approved for Alcohol Sales: Service of alcohol onsite requires, in most states, a survey of surrounding businesses to gauge proximity to other alcohol permit holders or prohibited adjacencies like day cares or schools. If the second-generation location is already serving alcohol, it’s another regulatory burden that is lifted for the operator.
  
  

Real-World Example

We Sell Restaurants recently worked with a franchise brand that was looking for new development space. They knew exactly what they wanted in terms of traffic count, size, equipment, and road frontage. Unfortunately, nothing was available since developers have been slow to commit capital to building new locations with the rise in interest rates over the past two years. We spoke to the brand about acquiring an existing asset sale, an open and operating independent pizza concept. At first, they were reluctant but once they viewed the location, they were ready to go.

The unit was already permitted, had a hood, grease trap, pizza oven and roughly the same build out they were seeking. Their cost to acquire the space was minimal compared to the delay in time to market. Within 60 days, they were ready to open by adding their trade dress and paint colors, replacing the menu board, and trading out the signage. What would have taken much more time and money was accomplished quickly with the help of Certified Restaurant Brokers.

Imagine that instead of spending 12 months on construction and permits, you could have your restaurant ready to open in just 2–3 months? This accelerated timeline allows you to seize market opportunities and start generating revenue faster when leasing a restaurant space.

Who Benefits from Second-Generation Spaces?

Second-generation restaurant spaces are ideal for a variety of operators including:

• First-Time Restaurateurs: Reduce the financial and operational challenges of starting a new business by leasing a space already designed for restaurant use.
• Established Brands: Expand quickly into new markets without the extended timelines or high costs associated with building out new locations.
• Pop-Ups or Test Concepts: Test new ideas or menus in a cost-effective way before committing to larger, long-term investments.
• Franchise Operators: Leverage existing infrastructure to streamline the process of meeting franchisor requirements and scaling operations.
  
  

Leasing second-generation restaurant space is a SMART choice. By embracing Savings, Market-Ready opportunities, Accessibility, Risk-Reduction, and Time-Efficiency, restaurateurs position themselves for quicker launches and more stable operations. For entrepreneurs ready to turn their restaurant vision into reality, exploring second-generation spaces should be at the top of the list.

At We Sell Restaurants, we specialize in connecting restaurateurs with the best second-generation spaces for their needs. Our Certified Restaurant Brokers have the expertise to guide you through the leasing process, ensuring you find the perfect location with favorable terms. Ready to take the next step? Contact us today and start your journey to restaurant success