Coffee shop lease costs without the filler

What to take away

Rent per open hour, in named variables

Substitute your own figures.

Typical U.S. inline retail asking rents for a coffee shop run about $18 to $45 per square foot per year before NNN, or triple net charges. Prime urban corridors can exceed $60. Secondary markets can be $12 to $25. Check current submarket asking rents on CoStar, Crexi, or LoopNet.

Let L be total occupancy cost for a month: rent, service charge, insurance recharge and any other fixed sum you pay the landlord. Let O be the hours you are open in that month.

Occupancy cost per open hour is L divided by O.

Example: a 1,200 sq ft unit at $30 per sq ft per year is $36,000 per year, or $3,000 per month. Add $8 per sq ft NNN, or $800 per month. L is $3,800 per month. At 300 open hours, occupancy cost is $12.67 per open hour.

Now split O into peak hours and quiet hours, and look at what each block earns. The arithmetic makes the afternoon problem visible: a quiet hour costs the same as a busy one and does not sell like one. That comparison, not the headline rent, is what tells you whether longer hours help or hurt.

Do the same calculation for a shorter opening day before you sign. If closing two hours earlier improves the picture, you have learned something about the site, and about the hours clause you are about to accept.

Verify the building before you negotiate

Ask the landlord for these in writing, and check each against your equipment list.

An espresso machine, a dishwasher and refrigeration together are a real demand. A unit that cannot carry them turns a competitive rent into an expensive one, and the upgrade is the tenant's problem in most leases.

Typical demand: a 2-group espresso machine needs 30 to 50 amps at 208 to 240 volts. A commercial dishwasher needs 30 to 50 amps. A small cafe often needs 100 to 200 amps of total service. The National Electrical Code (NFPA 70) sets the wiring rules. Confirm the panel and utility supply in writing.

The clauses that decide the real cost

Typical cost ranges: a full repairing obligation on an old 1,200 sq ft unit can add $5,000 to $25,000 in a single repair year. Reinstatement can cost $10,000 to $50,000. A security deposit is often 2 to 6 months gross rent. A personal guarantee is often 6 to 24 months rent.

Read the permitted use clause beside the answers you got from the planning office. A lease that allows what the authority does not, or the reverse, is a problem you inherit.

Fit-out, and the gap before opening

Rent usually starts before you trade. Model that gap as a cost, because it is one, and because approvals run on the authority's calendar rather than the builder's.

Typical coffee shop fit-out costs run $100 to $250 per square foot, per RSMeans-style construction cost data. Equipment adds $30,000 to $100,000. A 1,200 sq ft build-out at $150 per sq ft is $180,000 before equipment.

Ask the building department and the fire authority what stands between the finished space and occupancy, and ask each one its own typical timeline. Then add the fit-out period to the longest of those answers rather than to the shortest.

Typical timelines: commercial building permit review runs 4 to 12 weeks. Fire inspection scheduling adds 1 to 4 weeks. Health department plan review runs 2 to 6 weeks. Liquor license review can run 3 to 12 months. Add these to the fit-out period.

Accessibility belongs in the design now, not on a snagging list. Entrance, path of travel, counter, and restroom are set by the drawings.

The Department of Justice's ADA Guide for Small Businesses explains how it frames obligations for small businesses and what applies when a space is altered. A fit-out is an alteration. Take a qualified professional's advice for your build.

The premises requirements are set locally

What the space itself must satisfy comes from your local health department, and it depends on your menu. Ask before the lease, with the menu in hand.

The FDA Food Code is a model that states and localities adopt in different versions, which is why the FDA maintains a list of state retail and food service codes. Read the model for vocabulary and get the requirement from whoever inspects you.

The FDA Food Code 2022 sets cold holding at 41°F or below and requires hand sinks, a three-compartment sink, and a mop sink. Local codes may adopt a different version. Confirm the version your health department enforces.

Two site facts follow directly from the menu. Storage has to hold your delivery pattern, which is settled in what a shop stocks and how often it turns over. And the layout has to hold the morning, which is the subject of how a unit is judged against the peak.

Before you sign

Walk the unit once more at your intended opening hour, on a working day. Stand where the queue will be. Open the door and watch how far it swings into the room.

Then reread the three answers you should already have in writing: the planning position, the health department position, and the landlord's statement of supply. If any is missing, you are signing on an assumption. The shortlisting work behind this point is covered in how a site is narrowed from an area to a unit.

Typical rent free periods are 1 to 3 months for a small coffee tenant and 3 to 6 months for a larger build-out in a soft market. SBA 7(a) loans can finance leasehold improvements. Ask a lender about maturities tied to the lease.

Staffing reach matters too: a site that is hard to reach at six in the morning costs you in reliability, which is a real factor in hiring and holding bar staff.

If a second site is ever likely, check the assignment and alterations clauses again with that in mind. The commitments that make a first lease workable can make a second location harder than it needs to be.

Common questions

How long a lease should I take?

Long enough to recover the fit-out and short enough that a bad site is survivable. What matters more is whether you can assign or sublet, because that clause is your exit. Typical U.S. coffee shop leases run 5 to 10 years, with one or two 5-year options.

Should I pay for a survey of the electrical and water supply?

If the landlord's written answer is vague, yes. It is a small cost against the price of discovering the truth after the walls are open. A commercial electrical and water survey often costs $1,000 to $5,000, depending on scope.

Is a rent free period a real saving?

Only if it covers the period before you can trade. A rent free month that expires before you are permitted to open has cost you nothing and saved you nothing. Typical rent free periods are 1 to 3 months, or 3 to 6 months in a soft market.