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I think we may need to back up and define “occupancy costs”. Is someone talking about only rent expenses as occupancy costs?
 
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No, I understand. I am saying that the larger the volume you have the easier it is to attain 6%. It is not like you can go much below a certain minimum for occupancy costs. There are benefits to being a bigger operation as you realize economies of scale. If the average restaurant does $500K, then it is going to be very difficult to get down to $30K a year in total occupancy costs.
 
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NicksPizza:
I think we may need to back up and define “occupancy costs”. Is someone talking about only rent expenses as occupancy costs?
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Rent is just rent and expected to be no more than 6%. Occupancy costs are rent plus taxes, maintenance, and insurance AFAIK.
 
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Dewar's Pizza Bakery:
Rent is just rent and expected to be no more than 6%. Occupancy costs are rent plus taxes, maintenance, and insurance AFAIK.
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That’s what I am thinking. 6% is a definite goal, and worthy of celebration. Rent at 6% is pretty attainable.

EXAMPLE: 600,000 @ 6% is 36,000, which is $2,000 a month.

I don’ think that there is anything available in our county, sutable for a $500K+ operation) that would be less than $1500 a month rent. That leaves maximum of $500 a month for taxes, maintanence and any other included costs. I can it it as dable, just not so practical in our area.
 
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Occupancy costs are the total sum of everything it costs you to be in your location. Base rent, % rent, Cam, Taxes, Utilities, Insurance, PM and contracted services, plus whatever other contingencies are demanded from your lease (parking, signage, storage, security, etc…).

Don’t forget that the terms you negotiate are as important as the base rent numbers. 3-6 months free rent and Tenant Improvement (TI) dollars need to be taken into consideration to determine your effective rate.
 
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JeffreySummers:
Occupancy costs are the total sum of everything it costs you to be in your location. Base rent, % rent, Cam, Taxes, Utilities, Insurance, PM and contracted services, plus whatever other contingencies are demanded from your lease (parking, signage, storage, security, etc…).
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AND UTILITIES at under 6%?! No way.
 
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Utilities? For common areas yes, for the premises; Not.

Insurance? Only on the property. Not the business liability.

T/I? Depends on what it is for whether it makes sense to include in the equation. Same with rent holiday. T/I spent on base building in new construction really should not count. The condition that property is turned over varies substantially. 100K in T/I for a “vanilla shell” (another nearly meaningless term) where the tenant needs to upgrade the electrical and other services and add make-up air is quite different from 100K in a space that is already a restaurant with 208V 3phase power, a grease trap and sufficient air for the use. Rent holiday should only be counted for periods while open for business. A rent holiday during construction is desirable but does not lower the effective rent.

Initial rent rates often include “come on” rates which adjust after a short time to “market”. Only very solid tenant candidates can get longer leases with defined rent. Fewer will get defined option periods.

As this discussion illustrates, there are nearly as many ways to do a deal as there are deals. There are also very different ways of looking at expenses. Jeffry’s initial advice that most shop owners should seek professional assistance is entirely correct. What is possible, what is a good deal, what local practices are is something a local professional can and should be able to help you with.

In the last 30 days I just completed two leases for a total initial lease term value of 1.8M. The difference between the LL asking deal and where we ended up was $346,000 in cash and significant additions like HVAC upgrades, new entrance to the building etc from the LL. It was very a very desirable location and a fairly complex deal. A good bit of the $$ came from parts of the deal the tenant was not thinking about at all. Additionally, we were able to protect the tenant interests in a numbers of areas like assignment, default, condemnation etc where the LL was presenting a very one sided program. In the end these areas might be even more important than the $$ savings if it makes it possible for the tenant to sell the business when they are ready to.
 
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