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The Death Knell Is Tolling For Family Sit-Down Restaurants: What's The Future For All Their Empty Husks?

Eighties and nineties nostalgia was dealt a gut punch earlier this month when nearly 100 Red Lobster locations abruptly went dark amid the company’s Chapter 11 bankruptcy filing.

Restaurants that took the U.S. by storm 30 to 40 years ago are beginning to drop like flies after a whirlwind past few years that forced rapid innovation in response to evolving consumer demands. At least 12 of the nation’s biggest casual chains plan to scale back their portfolios this year, and while reasons behind the reductions vary, the potential real estate impacts grow more layered as closures bloom.

The turnover of space is expected to create opportunities in retail markets where rapid population growth has led to historically low levels of vacancy. But in less desirable markets, the empty carcasses of once-beloved chain restaurants will be harder to reckon with.


“There might be restaurant chains that are willing to come in and maybe take over a lease or a location,” Head Of Analytical Research R.J. Hottovy said. “But it’s also possible, at least in the near term, that there might be a lot of dark restaurants.” 

Fans of Cheddar Bay biscuits and endless servings of shrimp are among a growing group of consumers forced to say goodbye to the family sit-down restaurants of yesteryear.

Red Lobster filed for bankruptcy after dwindling traffic led to a $76M loss in revenue last year. The decision to make its limited-time endless shrimp promotion into a permanent menu item was the final nail in the coffin, costing the chain $11M, CEO Paul Kenny said in the Chapter 11 filing. The company did not respond to Bisnow’s request for comment.

Guest visits to Red Lobster have dropped 30% since 2019, per the company’s bankruptcy filing. After a strong start to 2022, year-over-year foot traffic once again declined that spring, remaining in the red until the summer of last year, according to data from The endless shrimp promotion caused a temporary rebound, but the improvements weren't enough to offset the company’s massive liquidity crisis.

Red Lobster’s financial woes are just a microcosm of what is unfolding at casual sit-down chains nationwide. Labor shortages, pricier ingredients and a decline in foot traffic have caused many to shutter locations and leave dated buildings behind.

Around 300 Applebee’s locations have closed since 2017, with up to 35 more planned for this year, the company’s president said during a fourth-quarter earnings call. TGI Friday’s announced the closure of 36 underperforming restaurants in January, and while rumors of Chilis’ demise have proven untrue, the chain did throw in the towel on 16 struggling branches in 2023.

There are 311 casual restaurant locations on the market nationwide, with Red Lobster leading the way at 75 locations, according to data provided to Bisnow by B+E Net Lease. Seventeen Applebee's locations are up for sale, while 32 Pizza Huts are up for grabs.

“The casual market has slowly tailored back over the last 10 years,” said Jill Battilega Rowe, partner at Venable and an attorney specializing in real estate litigation. “The pandemic expedited everything, but the real estate is still there.” 

When a company files for bankruptcy, it is given the freedom to walk away from lease obligations, leaving affected landlords holding the bag, Rowe explained. There are some emerging casual brands that could take over the space, but footprints are often too large and too unique for a simple backfill, she said.

“The landlord is left with a space that is really hard to retenant,” Rowe said. “There is some shifting in the real estate market, and these larger spaces that were built-to-suit for a particular franchise have a particular look that is harder to be flexible with.”


Today’s prospective tenants are mostly looking for smaller spaces of less than 2.5K SF, according to a nationwide report from JLL. That footprint tends to favor fast-casual concepts, making large-format vacancies difficult to fill. The average Red Lobster in Texas, for example, is 7.4K SF, according to data from Partners Real Estate.

Landlords are also keenly aware of cultural shifts that have unfolded post-pandemic and will be looking to replace dated concepts with brands known to drive traffic, Hottovy said.

Annual visits to fast-casual and fast-food chains have risen for several quarters now, with the latest figures showing an increase of more than 2% in Q1. Meanwhile visits to full-service chains were virtually flat the last two quarters, according to a spring 2024 trend report by Coldwell Banker Commercial.

“We're just not as relevant as we once were,” Cracker Barrel CEO Julie Felss Masino said in an earnings call last week that sent the chain's stock tumbling by 20%. “Some of our recipes and processes haven't evolved in decades.”

Hottovy said the way consumers interact with sit-down dining has changed, and he expects landlords to respond accordingly.

“People aren’t looking for legacy brands. They are looking for smaller, independent, newer concepts to create excitement at their property,” he said.

What the owners of vacant sites choose to do with vacated land will depend on their liquidity position, Rowe said. Most will likely either sell the property or partner with a developer to put in a new concept, whether that be one or more emerging restaurant brands or something mixed-use, Rowe said. 

“If you’ve been in the market for 15 or 20 years, you've probably come close to breaking even and maybe made some money,” she said. “If you bought in 2019, you’re having to make some really tough, cut-your-losses decisions.” 


In metros where there is less competition for space, affected landlords should seize the opportunity to capitalize on the media attention around the demise of national chains, said Mike Pittman II, director in Cushman & Wakefield's Houston office. 

“For tertiary market deals, it would behoove them to really consider any term sheets in front of them to backfill these locations,” he said. “The bad thing is that they're losing Red Lobster, but the good thing is that this is probably the most press their sites will get over the next 10 or 20 years.”

Renovations may be challenging given the dated architecture of older chains. But some groups could still be willing to attempt an adaptive reuse play, especially in an environment when interest rates aren’t friendly to new construction, MW Law Senior Attorney Shams Merchant said. 

Velvet Taco, a Dallas-based brand with a geographic portfolio similar to that of Red Lobster, hopes to grow from 46 locations today to about 200 by 2030, CEO Clay Dover told Nation’s Restaurant News. The company has already had success taking over unlikely locations, including a former sex shop in the Galleria area of Houston.

“Restaurant-retail, like any other retail, is struggling to find space,” Merchant said. “With restaurants going out of business and bankruptcies happening, there is going to be space available for other concepts to make use of.”

The U.S. retail market netted a modest 9.5M SF in deliveries in the first quarter, down about 27% from the same period in 2019, according to JLL. Only 25% of what is in the pipeline is available for lease.

In regions like Dallas-Fort Worth, where the retail market is less than 5% vacant, the demise of family sit-down chains could be a blessing in disguise, said Steve Triolet, senior vice president of research and market forecasting at Partners

Red Lobster has 13 locations in DFW, per Partners data, two of which closed as part of the bankruptcy filing. But more could be on the horizon as the company evaluates its portfolio.

“The good news from a commercial real estate perspective is there is an acute shortage of second-generation restaurant spaces in the DFW market, and most of their locations will have a number of tenants eager to backfill their spaces,” he said.

Shuttered locations could sit empty longer than usual due to higher interest rates making it more expensive to carry out renovations or demolitions, Rowe said. But if the timing works in the landlord community’s favor, a slew of empty restaurants could hit the market right as rates begin to come down.

“There’s probably going to be a flood of development because there’s all this pent-up desire,” she said. “There’s so many talented people in the developer space watching and waiting and wanting to use their skills, so I think there’s going to be some really fun stuff happening.”