87% of New York City Hospitality Owners Couldn't Pay Full August Rent

As the restaurant industry struggles to recover from the COVID-19 pandemic, rent costs are quickly becoming the primary hurdle that many operators are facing.

According to New York Hospitality Alliance's August Rent Report, 87 percent of respondents, which include 457 restaurants, bars, nightclubs and event venues, could not pay their full rent for the month. Responses were collected from Aug. 25 to Sept. 11, with more than 34 percent saying they expected to pay no rent at all for the month, while 48 percent planned to pay partial rent. 

For 60 percent of those businesses, landlords have not waived any rent in relation to COVID-19, while 40 percent have. For landlords that did waive rent, 43 percent reduced rent by 50 percent, while 28.5 percent have waived more than 50 percent. Further, about 39 percent of landlords have deferred rent, while 61 percent have not. 

In recent weeks, the city has reopened dining rooms at 25 percent capacity and has passed a 10-percent COVID-19 surcharge ordinance to help restaurants, but these measures may not be enough to cover the cost of rent if landlords aren't willing to negotiate. Although total occupancy costs typically make up about 8 percent to 10 percent of a restaurant's gross sales, that could be higher in New York, where rent, food and labor costs tend to be more.

The report also shows that a majority — over 57 percent of businesses — have not renegotiated their lease in relation to COVID-19, while about 15 percent have and 28 percent are in good-faith negotiations. There has only been a 4 percent increase in renegotiated leases between June and August, according to the report, even though the percentage of businesses that can't pay their full rent for the month is up from 80 percent in June and 83 percent in July. 

Since day one of the pandemic, New York City has found itself in a dire situation. The city, which had the country’s most restaurants, coffee shops and specialty-food stores per capita prior to the pandemic, has already experienced close to 1,000 restaurant closures, according to Yelp data reported by the New York Times. The New York State Restaurant Association has warned that as many as two-thirds of the entire state's restaurants could permanently close by the end of the year without additional government aid. 

The crisis is compounded by other pressures facing the restaurants right now. Labor costs typically run about 20 to 30 percent of gross revenue, and revenues will be challenged so long as consumers stay home, office spaces sit empty and dine-in capacity is only 25 percent. Plus, since service-sector jobs now mean a higher chance of infection, franchisors are finding it hard to even hire new staff, with employees laid off from other sectors avoiding work in foodservice.

In a letter sent to Congress last week, the NRA urged Congress to authorize a second round of PPP loans with more flexibility and payroll outlays and to ensure that expenses paid with these loans are deductible. The NRA also urged Congress to expand the Employee Retention Tax Credit to help restaurants get support after the PPP loan has run out and to provide restaurants with tax credits to help with significant costs restaurants are incurring.

Now, many major retail and restaurant chains are deciding to take matters into their own hands and leave the city. Michael Weinstein, CEO of Ark Restaurants, told the New York Times he won't open another restaurant in the city, as he can do the same volume in Florida with lower expenses and outdoor dining without seasonal restrictions. 

As new reports like this are released and the ongoing economic impact of COVID-19 starts to reveal itself, it is clear that the restaurant industry still has a long road to recovery.