Growth | June 2010 | By Sam Oches

6 Markets You Don’t Want to Miss

These markets weathered the recession better than most and are primed for your expansion efforts.

Six markets in the U.S. are primed and ready for opening quick-serve restaurants
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When the bottom dropped out on the economy, it did on your brand's expansion efforts, too.

But now, with the U.S. climbing out of the recession and lenders more willing to supply the financing necessary to build business, the time is right to forge ahead with expansion—and QSR knows exactly which markets you should do it in.

Al Beery, retail and restaurant practice leader for Pitney Bowes Business Insight, a market research firm that helps brands with site evaluation, says a handful of measures determine whether or not a city or state is right for your brand: employment levels, income levels, disposable income, local GDP, housing prices, and population. By establishing each factor's "growth score" market by market, where 100 is the national metro average, Pitney Bowes Business Insight determined the nation's healthiest markets. Armed with that information, QSR uncovered half a dozen markets around the country that are ripe and ready for you to move into.

Columbus, Ohio

Population: 1,801,848

U.S. Rank: 32

Median home price growth score: 108

Retail sales growth score: 102

Disposable income growth score: 101

States: OH, MI, IN, IL, WI

The recession left the states of Illinois, Indiana, Michigan, Ohio, and Wisconsin with dismal employment and income rates—two bellwether implications of the health of a particular market.

According to the National Restaurant Association (NRA), these Midwest states are projected to lose 1.4 percent of jobs in 2010, nearly double the national projection. Meanwhile, income is expected to rise only 0.5 percent, the lowest of any region in the country and far below the national rate of 1.2 percent.

While Midwestern cities like Cleveland, Detroit, and Flint, Michigan, took the brunt of the recession, Columbus, Ohio, maintained relative stability and is positioned for strong growth.

"For us in Columbus, we have a dynamic university, which continues to grow and is one of the largest in the country," says Kevin James, a Columbus-based broker for the commercial real estate firm Cassidy Turley, of Ohio State University. "It's also the state capital, which means there's always going to be a lot of state employment jobs, and that kind of stabilizes our economy."

James says quick serves can expect to pay a little more than $20 per square foot for most good real estate sites in Columbus.

"For one of the first times I can remember in the last three or four years, there are good sites that are available," he says. "A lot of them are existing buildings or end caps that can be converted."

Boston, Massachusetts

Population: 4,588,680

U.S. Rank: 10

Median home price growth score: 105

Retail sales growth score: 103

Disposable income growth score: 103

States: ME, NH, VT, MA, RI, CT, NY, NJ, DE, PA, MD

Boston is the 10th-largest metropolitan area in the U.S. and grew by nearly 44,000 people between July 1, 2008, and July 1, 2009.

Jim Speros, director of retail real estate for Boston Realty Advisors, says the area's many educational institutes create highly educated consumers who settle in the Boston area and have high disposable incomes.

"Boston is always a good place," Speros says. "Property values are always high because it's very desirable to live here."

Speros says today's low real estate rents—which he says are around $18–$25 per square foot for suburbs and $30–$80 per square foot for downtown—make Boston an attractive city for quick-service expansion.

"There have been a lot of businesses going out, and with the economy bouncing back now, and with a lot of availabilities and landlords who are motivated, you have a lot of new tenants coming out of the woodwork, especially food businesses," Speros says.

North Carolina

Population: 9,380,884

Projected population increase: 1.6%

Employment change: -0.4%

Real disposable personal income: +1.4%

2010 restaurant sales: +2.7%

Real estate sales volume: -19%

Real estate sales prices: -18%

Real estate availability: +10%

States: WV, VA, KY, TN, NC, SC, GA, FL, AL, MS

Between July 1, 2008, and July 1, 2009, the population of North Carolina grew by 133,750, the third-highest amount in the country behind Texas and California.

Marty Kotis, president and CEO of Greensboro, North Carolina–based Kotis Properties, says the continued growth potential of the state is what makes it such a hot market.

"A lot of people are moving to the area because they like the quality of life here," Kotis says. "Cost of living is another factor, and the fact that we're a right-to-work state, our labor is plentiful and it's priced appropriately."

Kotis calls North Carolina a "market that you prioritize" because real estate and construction costs are still low, while sales are going up. The fact that the state has the second-largest state-maintained road system, he says, is also beneficial for quick serves.

"That's a key factor for quick service, because it's all about traffic count and good roads and access," he says. "North Carolina is still moving forward with all of its outer-loop projects around various cities, people are able to get around pretty easily."

Kotis says the Raleigh and Greensboro metropolitan areas are two markets that are ripe for expansion.

Expansion in Charlotte, Kotis says, "got a little overheated," and is a good example of why quick serves should invest in smaller, outlying areas of North Carolina with less competition and more potential for profit.

"If you go to a small market you might be looking at $10 a square foot or less for land, so $400,000 for a site," he says. "For a hot market you might pay $1 million an acre for a site."

Washington

Population: 6,664,195

Projected population increase: 1.2%

Employment change: -0.1%

Real disposable personal income: +1.6%

2010 restaurant sales: +2.4%

Real estate sales volume: -3%

Real estate sales prices: -10%

Real estate availability: +11%

States: CA, OR, WA, HI, AK

Though the Pacific region of Alaska, California, Hawaii, Oregon, and Washington is expected to lose more jobs in 2010 than the national average, according to the National Restaurant Association, income and population levels are expected to be at or above U.S. averages.

California has traditionally been the economic heavyweight of the region, but the recession left the Golden State hurting—making Washington a safer bet for expansion.

"The general economy is a little more stable than some of the other markets around the country," says Tricia Deering, executive director of the Commercial Brokers Association in Kirkland, Washington. "There's a really good economic employment base here, and they tend to be higher paid jobs, with Microsoft, Boeing, and the Gates Foundation, and some of the other organizations that are headquartered in Washington."

According to the NRA, Washington's real disposable personal income in 2010 is expected to increase 1.6 percent, while employment is only supposed to decrease 0.1 percent. That compares with 1 percent and 1.1 percent, respectively, for California.

Deering says the Puget Sound area of Washington around Seattle and Bellevue is the best bet for profitable real estate, as is Spokane to the east. The central part of the state, however, is not as successful.

"It's not really strong at this point; they depend a lot on agricultural and seasonal employment," she says.

Colorado

Population: 5,024,748

Projected population increase: 1.4%

Employment change: +0.4%

Real disposable personal income: +1.8%

2010 restaurant sales: +2.9%

Real estate sales volume: -29%

Real estate sales prices: -16%

Real estate availability: +12%

States: NM, AZ, UT, CO, WY, MT, ID, NV

The future looks bright in Colorado, especially for restaurants. According to the National Restaurant Association, restaurant sales are expected to increase 2.9 percent in 2010, which is the best in the nation.

David Fried, senior vice president of Denver-based Fuller Real Estate, says a stable economy and growing population make Colorado an attractive spot for quick serves—if the market is right.

"Colorado is a great market for real estate, at least opportunities within highly populated areas," Fried says. "There are certainly many opportunities all over Denver metro with so much growth we've experienced over so many years."

A lot of markets within Colorado are overcrowded, Fried says, because "there was too much development against the rooftops that were projected."

Aside from the Denver metro area, Fried says Boulder is another market in Colorado that is proving to be successful.

"If you want really good quality locations, you're going to expect to pay between $25–$35 a foot, triple net," he says.

Texas

Population: 24,782,302

Projected population increase: 1.8%

Employment change: 0.6%

Real disposable personal income: +2.1%

2010 restaurant sales: +2.7%

Real estate sales volume: -15%

Real estate sales prices: -14%

Real estate availability: +9%

States: MN, IA, MO, AR, LA, TX, OK, KS, NE, SD, ND

Everything's bigger in Texas, but before the recession, retail development was threatening to become too big.

"We've been historically adding 3 million square feet a year," says Vaughn Miller, president of the Retail Division at Henry S. Miller Brokerage LLC, of the Dallas-Ft. Worth metroplex. "The good news is I think that's going to dwindle down to next to nothing. That will give us an opportunity to lease the space we have."

Real estate sales volume in Texas dropped 45 percent in the third quarter of 2009 over the same period in 2008. Availability of commercial real estate is expected to increase 15 percent between the third quarters of 2009 and 2010.

With so much space available and the economy finally turning around in Texas, Miller says now is the best time for quick serves to buy real estate.

"To purchase a property, we're seeing premium lots go for anywhere from $400,000 a lot to $800,000," he says. "And that same lot, three years ago, would have been $600,000–$1 million."

Population totals and U.S. ranks are courtesy of the U.S. Census Bureau and based on July 1, 2009, figures. Pitney Bowes Business Insight growth scores are for 2009–2013 with a national average of 100. Population, employment, real disposable personal income, and restaurant sale projections courtesy of the National Restaurant Association 2010 Restaurant Industry Forecast. Real estate sales volume and sales prices are a comparison between Q4 of 2008 and 2009, while availability is what is expected in 2010; all are courtesy of the National Association of Realtors' Commercial Real Estate Quarterly Market Survey, March 2010.