Once you’ve signed your franchise agreement, the next step is to think about and look for the perfect commercial real estate location.
COVID-19 has had a significant impact on the real estate market due to the unfortunate circumstances of businesses being forced to close their doors for good, making pricing extremely low for potential business owners.
Over the last three months alone, real estate values have dropped an average of ten percent in California, with mall values dropping by 25 percent and strip mall values fell by 16 percent.
Prospective franchise owners are looking at a buyer’s market, giving them the opportunity to secure real estate at reduced investment levels.
What History Tells Us about Real Estate Opportunities for Franchisees
During the recovery from the economic downturn back in 2008, investors that happened upon deeply discounted properties were able to profit in the long run solely by riding the wave of recovery.
Those who are currently considering franchise ownership and will be hunting for the right business space can generate a return on investment. However, it’s important to consider potential future costs to accommodate potential redesigns and health and safety requirements. This could include anything from the number of entrances to control foot traffic in a salon to social distancing in common areas and a reduction in seating capacities.
Whatever the circumstances end up being within a salon, the lower the price of the commercial real estate, the better your chances to foster a healthy profit margin.
Taking Advantage of Unique Opportunities
Not only are property prices deeply discounted, banks and insurance lenders are also accommodating with permanent loan restructuring, temporary relief and some of the lowest interest rates we’ve seen so far this year. Right now, most SBA 7(a) loans are at a prime rate of only 3.25 percent – making it a great time to think about investing in your new business location.
In many instances, we are seeing landlords offer much lower rates than they were just a few months ago. They are offering more buildout money and, with increasing frequency, are offering language protecting tenants from having to continue paying rent in the case of another shutdown. That was never considered a necessary addition to a lease before, but landlords now understand the need for it and seem to be willing to agree to it. As a result, tenants can get into better centers with more buildout assistance and better rates, lowering their cost of entry and their ongoing monthly expenses.
At Pigtails & Crewcuts, we’ve seen new franchisees take advantage of the real estate opportunity and open their first location. For example, Sarah Wallace, a franchisee based in Arizona, had signed her lease agreement in January of this year and started renovations when COVID-19 hit the United States. Sarah was able to power through and work to open her location in spite of the unique challenges posed by the pandemic.
Continued Support for Our Franchisees
We also understand that this is a difficult time for everyone, and have been working hard to support each of our franchisees to the best of our ability.
Currently, we are constantly communicating with our franchisees – chatting with most owners daily. From questions about legislation and relief bills being passed to how to communicate with their account holder and landlords, we are here to provide answers and guidance.
With the changes we have made regarding social distancing and how many customers we can have in the salons at one time since the pandemic began, we are looking at alternative spaces to our normal salon footprint and layout. For example, we have changed the room that we typically use for birthday parties into more of a waiting room but with appropriate distances considered. This has given us a bit more flexibility on the shape and size space we will consider. While it is a challenge to design salons to meet the new requirements, it has given us a larger number of spaces that we will consider – which is ultimately a benefit to new salon owners.
What Are Your Next Steps?
Make sure to take into account your budget and the competitive landscape in your market when researching commercial real estate. Doing so can aid in narrowing down the search and makes the process a little less overwhelming. Our corporate team is also well-versed in site selection and lease negotiations, which can take the pressure off of people who have never gone through the process.
Pigtails & Crewcuts is a family of franchise owners who look out for each other and want everyone to succeed. We recognize the challenges many people are facing during this difficult time but there are also unique opportunities available for those who want to achieve their entrepreneurial dreams.