How Much Rent Should a Restaurant Pay?

Rent is the only major cost you cannot fix after the fact. Food cost responds to portion control. Labour responds to rostering. Rent responds to nothing — you signed a document, and the number arrives every month for the length of the term regardless of how trade goes.

Which makes it the single most consequential decision most operators make, and it's usually made before there's a dollar of actual revenue to base it on.

The benchmark

Total occupancy cost should sit under 10% of revenue. Under 6% is excellent. Above 10% is a structural problem that high volume has to overcome.

The reason 10% matters is arithmetic. With food and labour together consuming 55–65% as prime cost, and other overheads taking 8–12%, occupancy above 10% leaves almost nothing. There's no clever operating that recovers it.

Working backwards to what you can afford

The right sequence is the opposite of how most sites are chosen. Don't find a site and hope revenue supports it. Start from revenue and see what rent it permits.

1. Estimate realistic annual revenue. Seats × turns per service × average spend × trading days. Be conservative — assume you fill the room less often than you'd like.

2. Multiply by 8%. Not 10%. The benchmark is a ceiling, not a target, and your first-year revenue will likely undershoot the estimate.

3. Subtract outgoings to get the base rent you can actually offer.

A 60-seat room turning 1.4 times over five nights at $48 a head is around $1.05m a year. At 8% that's $84,000 of total occupancy — perhaps $68,000 of base rent once outgoings are deducted. If the site is being marketed at $95,000, it doesn't work, however good the location looks.

Clauses that matter more than the headline number

The rent figure gets all the attention. These often matter more.

Review mechanism. Fixed annual increases are predictable. CPI-linked is usually tolerable. Market reviews are the dangerous one — they can move sharply and you have limited ability to argue.

Ratchet clauses prevent rent falling at review even if the market has. Common, and worth negotiating out.

Personal guarantees. Very common, and they mean the company structure doesn't protect you. Try to cap the guarantee by amount or by time.

Make-good obligations. Returning the premises to base condition can cost tens of thousands at the end of a term. Find out what's required before you sign, not in your final year.

Rights of renewal. Goodwill is tied to location. A lease with no renewal right means you build the business and then negotiate from a position of weakness.

Rent-free fit-out period. Three to six months is normal for a shell. It's real money and often easier to win than a lower rent.

If you're already above 10%

Three honest options.

Increase revenue in the same footprint

The percentage falls if the denominator rises. Add a lunch service, open an extra day, build takeaway or catering, extend into functions. Rent stays flat while revenue grows — which is the only route that fixes the ratio without moving.

Negotiate

Landlords prefer a paying tenant to an empty building and a re-letting cost. If you're genuinely struggling, open the conversation early with your figures in hand. A temporary abatement or a restructured term is more available than most tenants assume — but only while you're still current on payments.

Accept it's structural

Sometimes the site simply cannot work at that rent. Recognising it in year one, while the lease has value and you have energy, is a far better outcome than discovering it in year four. The hardest number in this business is the one that tells you to stop.

Before you sign

• Model revenue at 70% of your estimate and check occupancy still lands under 10%
• Get the full outgoings schedule in writing, with the previous year's actuals
• Have a lawyer read the lease — the fee is trivial against a five-year commitment
• Confirm the zoning, consents, and extraction permissions allow your concept
• Ask why the previous tenant left