'Less Time And Less Money': Why It's Really Off To The Races For The Blazing Fast-Casual Sector

Years after inflation began rising substantially in the U.S., even financially comfortable commercial real estate brokers admit they are finally starting to cringe at food prices.

Pain in the pocketbook is trickling down. And as money fears hit consumers, a hastening influx of fast-casual restaurant brands is flooding the market at greater velocity than ever before. 

The chains are swooping in to meet demand, expanding an already strong market share and setting them up to ride the wave of a Wall Street-supported real estate explosion. And commercial real estate is growing increasingly competitive to sync along with it.

“The growth in the past few years has been so explosive,” said Vivek Sinha, partner with Banyan, a retail developer across Texas markets.

“We speak of it anecdotally, about fast-casuals coming up and taking over, but the growth in market share in same-store sales ... and the compounded annual growth rates far outpace sit-down restaurants to the point that they're becoming a dominant force. They're small setups, but to some extent, they're taking over markets.”

Fast-casual chains are taking an increasingly outsized bite out of the restaurant sector, with analysts projecting a 6.6% compound annual growth rate for the segment.

Its already hefty market size is projected to reach $191B this year, and its increasing supremacy in the restaurant world is creating fierce competition for desired real estate.

“They are really benefiting from people having less time and less money,” said Peter Kruskamp, president and broker for The Shumacher Group, an Atlanta-based restaurant real estate company that specializes in site selection for regional and national restaurant chains.

Chains like Chipotle are leading the way and doubling down in 2025 as traditional restaurant operators contract, citing concerns about rising costs for food and labor, amid death-knell tolls for classic chains like Red Lobster and TGI Fridays.

The majority of restaurant operators surveyed said their top priority this year is to increase sales, according to a Restaurant365 report, and 46% of respondents said they are holding off on plans to open new locations. 

Wholesale food costs in December were 7% higher than a year prior and 35% higher than in February 2020, according to the National Restaurant Association. The association’s 2024 state of the restaurant industry report found 98% of restaurant operators were concerned about higher labor costs, and 97% reported higher food costs. 

“It's a mystery to me sometimes how any of these restaurants are overcoming these factors,” Kruskamp said. “Labor is ridiculous, if you can find people to work. ... But then you add the cost of the case of eggs.” 

Almost 40% of all restaurants reported not being profitable in 2023, according to the National Restaurant Association. 

But fast-casual is bucking the trend. Mediterranean restaurant chain Cava’s net income improved from $6.8M in Q3 2023 to $18M in Q3 2024. Both Cava and Chipotle have a restaurant-level profit margins of 25% or more. 

CRE is taking note and adjusting strategies.

Fast-casual restaurants benefit from having a large number of locations, and each addition helps, Kruskamp said. 

“A lot of these fast-casual folks are overcoming it by just the power of numbers,” Kruskamp said. “They're making less of a profit, but they're selling more.” 

The fact that most people, no matter their socioeconomic status, are feeling “strapped for cash” also boosts the number of fast-casual consumers, he said.

Chipotle, in particular, is flexing muscles. The chain is building a real estate pipeline that will “allow it to accelerate new unit growth to be in the range of 8% to 10% per year,” after opening between 285 and 315 stores last year, according to the company.

Chipotle plans to open between 315 and 345 more new locations this year. 

“Our value proposition remains strong, with the average chicken burrito under $10, placing us well below our fast-casual peers in pricing,” Chipotle Chief Brand Officer Chris Brandt told Bisnow in a statement. “We continue to focus on operations and our exciting menu and marketing initiatives.” 

Fast-casual health giant Smoothie King also plans to open more than 100 new stores in 2025. In 2023, Cava went public and announced plans to quadruple its footprint to 1,000 stores in the next decade. Cava’s stock was one of the hottest in 2024. 

Fast-casual restaurants operate in a smaller, less capital-intensive real estate footprint than their casual sit-down counterparts, said Emily Durham, senior vice president with JLL’s food and beverage advisory in Houston. This means fast-casual restaurants are easily replicated and can quickly open new locations, attracting investor interest.

“Not only is it smaller, but it might not require marble stairs and things like that. … So the return on the investment is going to be a little bit faster,” she said. “I think that's some of what explains Wall Street liking it so much, and so much more investment in that.” 

Cava, Chipotle and Wingstop hit all-time-high stock prices last year. Salad chain Sweetgreen saw its stock rise 34% after beating earnings expectations in May, Forbes reported, adding that investors were hungry for these companies to rapidly expand their footprints. 

With Chipotle adding hundreds of stores a year, it reached its 1,000th store in November. The company has a long-term growth goal of reaching 7,000 Chipotles in North America and expects its “Chipotlanes,” which are drive-thru lanes for only picking up food, not ordering it, to help accelerate its growth.

“In our pursuit of operating more than 7,000 locations in North America, we strive to be where our consumers are and to provide them with convenient ways to access Chipotle,” Brandt said in a statement. “Chipotlanes—which are ‘the fastest way to Chipotle’ from a digital perspective — allow us to enter these markets with a familiar and convenient access point that gives guests the option to pick up Chipotle without ever leaving their car.” 

The type of real estate major fast-casual brands are seeking varies by market. Endcaps on suburban shopping centers are popular so the restaurant can have a patio or a drive-thru, Sinha said. 

High-quality shopping center owners will seek out fast-casual chains because they are typically creditworthy and good co-tenants, Sinha said.

“A lot of developers want to be on the higher end of the quality and spectrum of a development,” he said. “All else equal, I would want a Cava. I would want a Sweetgreen because it drives, in our view, the right kind of traffic to the center.” 

But landlords aren’t the ones doing the courting, as fast-casual brands’ success is stoking fierce competition, Durham said. A landlord with a high-quality shopping center in a great location will likely have a line of fast-casual restaurants wanting to get in, she said.

“It's just been elevated so much that on the landlord side, that just means you get to pick, and you can pick a national credit tenant, which is going to be a more secure tenant than, unfortunately, a local mom-and-pop,” Durham said. “You tend to see clusters of the same groups of fast-casuals rolling out together.” 

As fast-casual restaurants demand retail space, developers are happy to make it for them, said Ishnella Azad, managing partner of 5Rivers CRE, the owner of about 5M SF of shopping centers throughout the Sun Belt. Like fast-casual restaurants themselves, some developers are using a factory approach of building out 5K SF retail centers for two tenants, including a fast-casual restaurant, she said.

“[They can] put up 1,000 of these suckers. … You have a whole developer class of people that are now just deploying a build-to-suit factory lineup production for these small fast-casual locations,” Azad said. 

No matter where in a market a fast-casual restaurant opens, there is demand for the fresh, affordable and relatively healthy options that fast-casual chains provide, said Joe Hannon, general manager of inventory and sales for Restaurant365, a restaurant software company.

The desire for healthy options is exemplified by fast-casual restaurant sales increasing 3.2% year-over-year during the first half of 2024, while quick-service restaurant sales stayed flat, he said. 

Inflation hit the rest of the restaurant industry hard, but fast-casual restaurants’ efficiency and price points helped them weather the storm, Hannon said. Fast-casual food also travels well, which boosted their sales 20% to 30% in the early days of the pandemic when no one was eating out and ordering delivery instead, he said. 

“You can't craft a better situation for a delivery-type service than Covid. Not that it was a good situation at all, but that is the perfect storm for something like delivery services,” Hannon said.

That growth that started during the pandemic is now being turbocharged by consumers watching their wallets and seeking convenience, and CRE and investors are taking notes and shifting strategies.  

“A lot of franchisees are out there that can spin those things up pretty quick and start, ideally, turning a profit a lot faster than most other restaurant types,” Hannon said.