Restaurant deals sizzle in Toronto's core

An insatiable appetite for restaurant space in Toronto's core is pushing up lease rates, real estate experts say, as tens of thousands of new condo-dwellers go looking for a place to eat, drink and socialize.

"When you look at a place like Earls at King and Yonge, the lineups are crazy," said John Crombie, senior managing director at Cushman & Wakefield. "And when you're hearing rumours like $15-million in sales in a location like that, you just shake your head going 'Wow, it's crazy.' And that whistles through the marketplace like, 'How can I be a part of this?'"

Expanding east from its Vancouver base, Earls located its kitchen and bar in the Sun Life tower in the heart of Toronto's financial district on the northeast corner of King Street West and University Avenue a little more than a year ago.

While Mark Hladik, Earls operations manager for Ontario, declined to release sales figures, he did say, "I will tell you that it's been wildly successful and surpassed our expectations, and our expectations were very high going in."

"I think people look at a chain for consistency, but we provide something above that with the food being made from scratch and the personalized service," he said.

The success of West Coast restaurants such as Earls and Joey at Yonge and Dundas has created a situation where any downtown site that could be considered appropriate for a restaurant is receiving multiple offers – even if it's too small or has challenging features, Mr. Crombie added.

Steven Alikakos, senior vice-president for retail at DTZ Barnicke, is also seeing hot demand for restaurant space from clients in the United States and Western Canada.

"They are aggressively trying to get into downtown Toronto, and it's very tough to find the kind of space they're looking for. A lot of them want patios because of the success of Earls and Joey, and it's very difficult to find that in the financial district," he said.

One that has found its Toronto home is the Tilted Kilt, a franchise based in Tempe, Ariz. The upscale sports pub chain, which dresses buxom waitresses in plaid – think Hooters meets Braveheart – has more than 60 franchises in the United States and one in Edmonton. (There is a independent Tilted Kilt neighbourhood pub in Whitby, Ont., with no connection to the chain.)

The American chain will be opening this summer on the Esplanade between the Spaghetti Factory and The Keg. Mark Hanby, vice-president of development for the Tilted Kilt, says he knew Toronto was a place to do business when he visited last October.

"I stood in one spot in [the downtown]and counted 19 cranes at the top of buildings," Mr. Hanby said. "I came back to Tempe and said, 'Those folks don't know about the recession yet.'"

Mr. Crombie says despite the fact that the Tilted Kilt site was not ideal for a sit-down restaurant, the landlord received multiple offers when it came up for lease. (Most upscale chain restaurants would prefer more than 8,000 square feet, Mr. Crombie said, but this one was only 5,600.)

"It's a tight market, so there's very few [sites]to choose from. A lot of restaurateurs are trying to adjust their size," he said. "It's not big enough, but how do you make it work? You've got to change your formula, you've got to look at more creative things."

To maximize the amount of seating space in a smaller property, Mr. Crombie said restaurateurs will choose space-saving features such as unisex bathrooms. To maximize seating space in the Tilted Kilt's Esplanade site, the restaurant's beer kegs will be stored in the parking area underneath the restaurant, with the beer piped up through the floor.

Mr. Alikakos is about to launch a new 6,000-square-foot restaurant location at Commerce Court. Even before the site was officially for lease, he had a lineup of people wanting to put in offers, because word had gotten out there was prime space up for grabs.

Mr. Crombie attributes much of the current craze for downtown restaurant space to the condo boom. "People are now living and working in the same location, and a lot of the condos that are coming on stream are, like, 500 and 600 square feet," he said. "I think we're moving toward a New York style of living, which means that you can't stay in your condo all the time – you've got to get out."

The growing downtown demographic has the disposable income to spend out on the town, said Chris Wanzel, senior sales associate for CBRE's urban retail group.

"We're a city that has a vibrant nightlife," he said. "We are building a sustainable population downtown, it's a young demographic or empty nesters moving back from the suburbs and they're saying, 'I don't want to cook every night, I have all this money, it's time to live the life.'"

When a downtown site went on the market recently, Mr. Wanzel says he received 10 or 12 offers at full asking price from restaurants eager to set up shop there, even though the site had challenges.

"There's not a great patio, it's right across from a very successful restaurant already, it's set back from the street a little bit – it just didn't present that Earls model that is blowing everybody out of the water," he said.

The biggest change in restaurant business in Ontario in the past five years is the influx of West Coast brands such as Joey, Earls and Moxie's, Mr. Alikakos said. All are on the hunt for more prime downtown Toronto real estate.

"Their brands are working here, and Ontario companies have really let the ball fall and haven't kept up with the way the West Coast brands have been able to create this market for themselves," he said. "They're offering a premium product for a casual price."

Mr. Wanzel agrees. "The model is so different – it's a lounge, restaurant and bar, but if you move from room to room it has a different feel," he said. "Whereas our restaurants were never geared that way, you would have a meal and then go somewhere else," he said. "So I think people really like that aspect of being able to spend way too many hours at one place."

As demand for restaurants continues to rise, rents have risen as well, Mr. Crombie said.

"I can think of deals that were done for $30 per square foot, and now we're currently seeing $40, and space up to $60, $70 per square foot. And it's generated by the fact that restaurant sales have been increasing," he said.

These high rents put pressure on restaurants to produce enough sales to cover those rent costs, which could mean that chain restaurants with deeper pockets are more likely to get space over the independents.

Garth Whyte, president of the Canadian Restaurant and Foodservices Association, says it's important to ensure that it's not just one type of restaurant that can afford to survive downtown.

"You always want a mix, fine dining all the way down to quick service, and you need that neighbourhood pub too," he said. "So were watching closely to make sure they are not priced out of existence."

Western invasion

Western Canadian and U.S. restaurant chains with an "upscale casual" vibe are infiltrating the Ontario market. Here's how the numbers stack up:

5: Earls locations in Ontario. The flagship of the Fuller family restaurant empire has outlets in Burlington, Mississauga, Toronto and Woodbridge, plus one opening in London this spring.

2: Joey locations in Ontario. Another offshoot of the Fuller family, Joey Don Mills and Joey Eaton Centre are both in Toronto.

23: Moxie's Grill & Bar locations in Ontario. This Calgary-based chain has a substantial presence in Ontario, including Thunder Bay, Ottawa, Barrie, Toronto, Guelph and Windsor.

2: Tilted Kilt locations in Canada. This Arizona-based chain of sports pubs will have Toronto and Edmonton outlets by the summer of 2012.