Second-Generation Restaurant Spaces Offer Savings, Not

As construction costs rise, more restaurant operators are looking at second-generation spaces-locations with existing kitchens and equipment-to reduce development expenses and accelerate openings. Building a new restaurant from the ground up can cost between 1.5 and 2 times more than converting an existing one, according to Alexis Readinger, founder of the hospitality design firm Preen.

Sam Ballas, CEO of East Coast Wings + Grill, notes that every dollar saved on upfront investment is a dollar that does not need to be recouped through later operations. This financial pressure makes second-generation spaces particularly attractive for smaller brands and emerging chains, which can often adapt more easily to an existing layout. Highly standardized national chains, such as In-N-Out and Chick-fil-A, typically build to exact specifications and are less likely to compromise their model for a real estate deal.

Not Always a Bargain

The biggest pitfall is assuming every second-generation space is a good deal. A lower initial construction estimate does not automatically mean a lower total investment, Ballas cautions. Problems often arise from a mismatch between the inherited infrastructure and the needs of the new concept. Operators might see existing equipment and anticipate savings, only to spend heavily reworking the layout because the space does not fit their operational flow.

Danny Bendas of Synergy Restaurant Consultants advises operators to avoid emotional decisions. "Don't get emotional about it. It either works or it doesn't," he said. Readinger describes choosing the wrong space as being "penny-wise, pound-foolish."

Matching the Concept

The strongest case for a conversion exists when the new concept closely mirrors the old one, especially in kitchen layout and equipment. "Second-gen makes the most sense when you're going like-for-like in concept," Readinger said. "If I want to do sushi and I can take over a sushi place, from an infrastructure standpoint, it's brilliant."

However, significant concept shifts-like turning a fast-casual burger restaurant into a full-service kitchen-rapidly diminish potential savings. Operators must verify a space meets all their brand's non-negotiable requirements before signing a lease. Bendas warns that if a critical brand element cannot be accommodated, the space is wrong, regardless of the deal.

Essential Due Diligence

Understanding why the previous restaurant failed is key. "There's usually a reason a restaurant space became available," Ballas said. Operators must determine if the closure was due to the concept, the operator, or a fundamental issue with the location itself, such as poor visibility or inadequate parking.

Research should include the location's history and, if possible, conversations with the former owner. Second-generation spaces can also carry reputational baggage, sometimes requiring a dramatic overhaul to erase negative associations linked to the address.

The physical building and equipment demand rigorous assessment. While stainless steel tables are durable, items like refrigeration units and deep fryers need close inspection to see if they are worth keeping. Bendas advises operators to negotiate the removal of unwanted equipment as part of the lease agreement to avoid disposal costs.

Ballas also warns that existing systems like HVAC might seem like assets but could fail soon after opening. Such risks must be managed during lease negotiations. He stresses that involving real estate, construction, operations, and design teams early is key to avoiding a design that looks good on paper but creates operational headaches. "The goal isn't to open the cheapest restaurant," Ballas said. "The goal is to make the smartest investment."