Alcohol and Real Estate: The Value Impact
If you’ve been paying attention, you’ve seen a lot of discussion in our community lately about establishments that serve alcoholic beverages and the impact they have on our community. One impact that is often ignored is real estate value. Whether it’s the controversial bar/club going into the former Planned Parenthood building in Augusta or the proposal to change the Columbia County Alcohol Ordinance, the effects on surrounding real estate can be substantial.
The first thing to consider is that the impact from restaurants that serve alcohol and the impact from bars is not equal. Restaurants, whether they serve alcohol or not, are desirable and often increase the value of surrounding properties. Bars and nightclubs, however, tend to have a negative effect on surrounding property values.
Co-tenancy matters! Co-tenancy refers to a tenant’s right to either reduce their rental rate or terminate their lease if certain lease conditions occur. For example, if a big-box anchor tenant were to vacate a property, most of the other tenants would have the right to a drastically reduced rate or to terminate. Another example would be if a landlord leased space next to a national grocer to a bar, pawn shop, or massage parlor. The grocer would have the right to terminate their lease if certain quality of co-tenants were not maintained.
National retailers love to have great restaurants, whether they serve alcohol or not, as neighbors. But they require that bars and clubs not be allowed to occupy space on the same property as them. What do these national retailers understand about alcohol? They understand that bars/clubs result in more crime, vandalism, higher property expenses, excessive wear and tear to the property, and ultimately lower rent levels. In addition, they understand that restaurants result in a diverse amount of patrons that often spend money at neighboring stores and don’t result in increased vandalism and crime. Restaurants also often result in higher rental rates for the properties around them.
Some recent local discussion has focused on the Columbia County requirement for restaurants to derive 51 percent of their sales come from food, if they do serve alcohol. From a real estate perspective, I think this is a good provision that prevents an abundance of bars in a suburban area. Before owning Sherman & Hemstreet, I worked in business brokerage, and I know that many restaurants either float very close to 51 percent or just outright alter their numbers when they sell more alcohol than food. Restaurants that essentially operate as bars already exist and they are easy to find. I don’t think we need to open the door to venues that only sell alcohol, putting pressure on our real estate values.
Regardless of your opinion on drinking, statistically we see that the more places a community has that serve alcohol, the more crime and DUI’s that community will have. Good reputable restaurants raise property values and rental rates whether they serve alcohol or not. Straight up bars and clubs reduce property values and rental rates and generally have more crime and vandalism. There are already plenty of places to get a drink, and I would argue that we should focus on good retail growth including national users and restaurants.