Commercial 101 / By Serena Solomon / August 8, 2017
Commercial Guide: A Cost Breakdown to Open a Restaurant
A restaurant renovation cost guide to opening your own business—from walk-throughs and permits to MEPs and construction deadlines
Chikarashi renovation by Sweeten architect Steven and Sweeten general contractor Carl
Restaurant renovation costs are hardly a prix fixe situation; they can vary dramatically based on the project. Is it a turnkey situation in which you’re planning to open up shop in the location of a former restaurant that already has a kitchen, gas, and electrical? Or are you starting from scratch? The city you’re in will also impact the cost, as will the quality of the finishes and the other professionals you hire for your team. Sweeten, a free service matching business owners with vetted general contractor, offers some categories to account for and tips on how to draw up an initial budget.
Building Journal puts the national average cost for a 5,000-square-foot restaurant with mid-level finishes at $160 a square foot, or $480,000. This can include the build-out, permits, equipment, and design. That cost is higher if you’re based in an expensive city such as New York ($216 per square foot) or Philadelphia ($180 per square foot). “We tell chefs in NYC who are typically looking at a 2,000-2,500 sq/ft space for a 50-80 seat restaurant that costs can range from $300-350 per square foot for the front of house and $200 per square foot for the back of house,” says Jonathan Garnett, the creative director at architectural firm MNDPC. “Multiply that by the 2,000-square-foot space and you have a ballpark.” Note that this scope does not include furniture, fixtures or restaurant equipment.
What your food and beverage establishment will cost is unclear until you sit down to develop a budget. Here are elements to seriously consider when pulling together an initial budget.
For some, starting a restaurant is a creative endeavor, so they prefer to work closely with their general contractor, architect or designer on the design. Some smaller projects like a cafe might not warrant hiring a restaurant designer.
It’s a huge range: Those looking to bring in a designer could pay as little as $25,000 or as much as $400,000 and beyond, according to Jimmy Haber, from ESquared Hospitality, which has a long list of successful restaurant ventures all over the world. The cost depends on the “celebrity” quotient of the designer, whether the space requires a lot of alterations in order to implement a certain design, or how elaborate the decor will be. A restaurant designer won’t just help with the look and feel of the place, but also the all-important layout. The layout will greatly impact the flow of service from kitchen to patron and your staff’s ability to do their job during busy moments. Bringing in an architect early on in the process will provide cost-effective expertise from start to finish, saving time and headache. Basic services include drawing up schematics and submitting the Certificate of Occupancy, but a full-service architect can provide guidance from project management to various levels of interior design.
A designer’s expertise could also increase the number of seats in the establishment, increasing income in the long run. “By the time you construct and open your restaurant, the mistakes are already there and it is too late,” said Jimmy, on why a designer is worth considering. If you’re big on the creative aspect, then make sure you select a designer who you feel will work within your vision rather than commandeer it.
Review the MEPs – mechanical, electrical, and plumbing
This is critical to do before even renting or buying a space (if you’re at this stage, read our earlier post). Perhaps the MEPs are so far gone you will opt for a different venue altogether. Regardless, accessing the MEPs will help you set a realistic budget. For example, a decrepit HVAC system can blow the budget out by tens of thousands of dollars, according to Dan Soloway, a hospitality consultant with Kitchen Options.
In big bureaucratic cities like New York, connecting the gas can take months, which is why Jimmy no longer uses gas appliances in his establishment. He only uses electric to save clients from costly delays of connecting gas.
Fitting out a new restaurant or renovating an existing one will rope in a lot of government departments—the fire department, the gas provider, buildings department, etc.—from whatever town or city you’re in. The actual permits can be a low-cost item on a budget (Jimmy estimates less than $5,000), but getting those approved can add substantially to the overall restaurant renovation cost.
Before you sign a lease, always check the certificate of occupancy (CO). This will dictate what the space can be used for. If it doesn’t give permission for a food and beverage establishment, changing it could be expensive and time-consuming, or in some cases, impossible.
Once you’ve checked the CO, Jimmy recommends spending the $25,000 or so to bring in a mechanical engineer, a kitchen consultant, and a lawyer. That team can look over everything from the liquor license (if the location has one, which is ideal) to the MEPs that we mentioned above. If these areas are not up to par, that could delay the approval of your permits.
What if your location isn’t already approved for a liquor license? It has become increasingly common for clauses to allow restaurateurs to exit the lease if a liquor license application is denied, said Dan, the restaurant consultant. “That’s because the business might hinge on your ability to sell alcohol,” he said.
Floors might still need to be laid and bathrooms built or renovated. A survey of more than 700 responses from the industry publication Restaurant Owner found for a medium restaurant—around 3,200 square feet—construction alone or build-out cost an average $50 a square foot.
Even if it is a turnkey restaurant, things like accessibility must be up to current standards, according to Slavica, a Sweeten contractor. Since the Americans with Disability Act passed in 1990, businesses and employers are required to make reasonable accommodations for people with disabilities. This could mean a ramp instead of steps, and bathrooms and doorways wide enough to fit a wheelchair.
The restaurant renovation cost of fitting out a bar and kitchen, including all the equipment like burners and espresso machines, can be a big budget line item. The Restaurant Owner’s survey put the average cost of a 1,000-square-foot bar and kitchen, including the equipment, at about $75,000, or $80 a square foot.
Restaurateurs can buy second-hand equipment, but first, they must do their due diligence. That usually involves spending a few hundred dollars for a technician to look over the equipment before buying it, said Dan, the restaurant consultant. There is also the option to lease equipment, which means a reduced upfront payment, but possibly more in the long run. However, the leasing company normally handles repairs and might even provide things like detergent with a dishwasher.
Rent and labor contingency
Of course, things can go wrong in a renovation. On average, the Restaurant Owner’s survey found that the overrun on a restaurant remodel budget to be 34 percent. Numerous hurdles can slow down your opening and delay that exciting moment when you make your first sale. Meanwhile, you’re still paying rent for the space.
“I think your pre-opening rent can be a big wild card. It usually takes much longer to open than you think it does,” said Jimmy, from ESquared Hospitality. A six-month rent contingency can be a business-saver, as is a few months’ contingency for staff costs. Sometimes staff members are already hired—manager, chef, sommelier, etc.—and on the payroll when a delay arises. A labor contingency means you can continue paying them during the delay. Otherwise, they could look for new jobs, which means starting the hiring process from scratch.
Assessing and writing a restaurant renovation cost plan can be like charting a new land—confusing, tedious, and with a few questions marks—but a realistic budget can set you up for a win and bring you one step closer to that dream business. Here is a budget breakdown for a 2,000-square-foot restaurant in New York City by Sweeten contractor Tony.
Thinking about renovating a retail space? Check out our first post on commercial construction, 5 steps to remodeling a business space.
Sweeten is a free service for business owners who are looking to renovate a restaurant, retail space, office and more. We handpick the best general contractors to match each project’s location, budget, and scope, helping until project completion. Here’s how we can help you build your commercial space. When you’re ready to renovate, start your renovation on Sweeten.