The real estate market is competitive and rental rates are as high as ever. Too many operators focus only on the day-to-day operations of their business, and they overlook their lease, but your lease rate could put you out of business. A healthy lease is generally 6% of sales and 8% is reasonable, but once you get above 8-10% it’s time to renegotiate. If you are a large operation with many locations, the economies of scale can absorb a few bad leases, but you should still keep a close eye on the entire portfolio of leased locations to make sure it's not getting out of a healthy range.
Remember too that market rent is not necessarily the right rent for your business. Some restaurants need a below market rent to survive. Consider your long-term success – if you are thinking of signing a 5-year lease when the market rent is at the top, you might lose profits in 18 months if the market rent is down. A professional can help you negotiate the right lease for your business.