Los Angeles Restaurant Closures: Wake-Up Call or Turning Point?

Reading into the wave of Los Angeles restaurant closures

Los Angeles has recently seen a wave of restaurant closures, from iconic long-timers like The Pantry and Papa Cristo’s (who just announced that they would be closing this month) to newer ventures like Kevin Hart’s Hart House. In the year of 2024, there have been more than notable 100 restaurants closed down, according to the Los Angeles Times. While headlines are filled with the words “devastating” and “historic,” smart commercial real estate professionals know this isn’t just a story about endings—it’s also about changes and looking ahead.

Here’s what the closures mean for both the restaurant and commercial real estate industries, and how brokers and investors can turn today’s challenges into tomorrow’s hope.

What Restaurant Closures Signal for the Industry

It’s important to acknowledge that many of these closures are also deeply tied to the individual circumstances of each owner and operator. Family-run establishments, legacy restaurants, and first-time entrepreneurs have all been affected in different ways. These are not just economic stories—they’re personal ones. We feel sincere sympathy for the losses experienced by restaurant owners, their staff, and the loyal customers who supported beloved and notable establishments over the years. The closure of a long-standing community favorite is never easy and deserves respect and reflection.

Undeniably, the restaurant industry is facing several key challenges. Rising costs—ranging from food inflation, to higher minimum wages, to increased rent and insurance premiums—are squeezing profit margins. California’s $20/hour minimum wage for fast food workers adds even more pressure to some quick service restaurants as well. Many restaurants are still paying off debt from the pandemic, such as deferred rent and government loans, while consumer behavior has shifted. In the case of Los Angeles, many businesses are also still recovering or suffering from the January wildfires.

We’re seeing a number of responses from the industry emerge. Restaurants are downsizing, offering smaller footprints and streamlined menus to manage costs. Technology adoption is rising, with more venues implementing self-order kiosks and back-of-house automation. Experience-driven dining is also on the rise, as concepts offering ambiance, exclusivity, or themed experiences are outperforming basic offerings. It is also worth noting that fast casual and franchise brands with strong capital backing are continuing to grow, more and more unique culinary concepts are springing in the market, and hybrid model restaurants are scaling fast.

What This Means for the Commercial Real Estate Industry

For commercial real estate brokerages in Los Angeles, the restaurant closures translate to a rise in retail vacancies, particularly in high-rent, urban neighborhoods. As tenants churn out, it is common to see that landlords are offering more concessions, shorter lease terms, and tenant improvement packages to attract replacements. This dynamic opens the door to a new phase of real estate adaptability.

Besides, another trend we cannot overlook is toward creative repositioning of underused restaurant spaces. These properties are being reimagined as boutique fitness studios, medical or wellness facilities, and even hybrid retail spaces. Lease structures are evolving, too, with flexible terms and performance-based deals becoming more common.

In the long term, second-gen restaurant spaces provide tremendous value. These turnkey properties save time and money for new tenants, especially those in startup or franchise expansion mode. There’s also growing demand for creative adaptive reuse—ghost kitchens, coworking kitchens, med spas, or even entertainment-based concepts like arcade bars or immersive dining experiences. And with some prime real estate trading below market value due to failed operations rather than location flaws, savvy investors can find real opportunities to reposition and profit.

Outlook in 2025

In the face of the current volatile market and highly dynamic economic environment, we’re seeing motivation for making efforts in propelling smarter lease structures which hopefully brings long-term stability. Percentage rent agreements, shorter terms, and performance clauses offer flexibility while aligning tenant success with investor returns. At the same time, the market is shifting toward more stable, service-oriented tenants. Uses like urgent care, childcare, tutoring centers, boutique fitness, and pet services are stepping in to fill vacancies and tend to have longer stays with consistent revenue.

As mentioned previously, second gen space’s integration with creative rebranding and repositioning also opens up a window for leasing up for stronger cap rates. From the perspective of real estate, new operators can launch based on extant buildout and reimagine the restaurant space with innovative business plans, backed by solid financials.

A Realignment, Not a Collapse

The LA restaurant shakeout isn’t the death of dining—it’s a realignment. We’re witnessing changes in cost structure, consumer behavior, and business models. In that realignment lies potential. For restaurateurs navigating this environment, now is the time to think more strategically about real estate. Consider leasing spaces that offer flexibility in size and layout, or seek locations with existing infrastructure to reduce startup costs. Collaborating with landlords on buildout incentives, negotiating shorter-term leases with renewal options, and exploring co-tenanting in mixed-use environments can help mitigate long-term risk. If you're struggling with your current space, it may be worth exploring sublease opportunities, relocation to a less expensive submarket, or partnering with others on a shared kitchen or hybrid retail concept. The right space at the right terms can make all the difference in long-term sustainability.

There’s opportunity in the turnover. Let’s take the next step.

Need help repositioning a second-gen restaurant listing or navigating new tenant mixes in LA? Let’s talk about strategy. Email: info@cbicommercial.com

Tel: 310-943-8530