When High Rent Doesn’t Mean High Reward: Lessons from Hospitality Site Economics
When it comes to choosing a hospitality site, one of the most critical decisions is the rent. High footfall, premium locations often come at a price—but does a higher rent always translate into higher revenues or, more importantly, higher profits?
In this post, we’ll break down the real-world experiences of a former 12-site quick-service restaurant (QSR) chain. From our early openings to our city-wide clustering strategy, we observed firsthand how rent levels affect turnover, EBITDA, and long-term viability. Spoiler alert: paying top rent doesn’t guarantee top results.
The Rent-Revenue Relationship: Not as Straightforward as You’d Think
There’s a widespread assumption in hospitality that better locations—which often come with higher rents—automatically lead to better performance. On paper, that makes sense. But in practice, the relationship is far murkier. We’ve seen an inverse correlation at times, where higher rents actually decrease overall profitability, even when revenue ticks up slightly.
Let’s unpack the real numbers from our journey.
Case Study 1: A Low-Rent Site That Hit Industry Benchmarks
Our very first QSR location had a base rent of just over £30,000 per year. Excluding service charges and business rates (which can vary widely), we focus here solely on base rent to make clean comparisons.
Over its trading life, this site matured with revenues climbing steadily and eventually plateauing at around £650,000 annually (net of VAT). This placed our rent-to-turnover ratio at just under 5%—a very healthy number.
Financial models in hospitality often assume a rent ratio of 10%. Hitting 5% put us in a great position to achieve that golden standard: 20% EBITDA. And we did.
This location became our benchmark—solid performance, manageable costs, and a clear path to profitability.
Case Study 2: The £100k Rent Site That Struggled to Justify Its Price
Four years after our first opening, we launched a second site with a base rent of £100,000—a more premium, central location. Expectations were high.
Revenues came in around £750,000 per year. On paper, that’s growth. But when you factor in the rent, the ratio jumps to 13%—well above our earlier benchmark. Profitability fell short of the 20% EBITDA mark, and the site didn’t contribute at the same level.
Despite higher turnover, the increased rent diluted our margins. The lesson? Revenue increases must be significant—often dramatically so—to justify high-rent sites. Otherwise, they cannibalize profits rather than build them.
Replicating the Low-Rent Model: Consistency Over Ambition
Our subsequent openings proved this further. Two more sites launched with rents again around £30,000 annually. These locations reached revenues of £600k–£650k, similar to our first site. The unit economics worked beautifully.
In fact, one of these newer sites surpassed expectations, generating over £800,000 annually. With the same rent as our original site, this location delivered EBITDA well beyond 20%, nearing 30%. That’s a standout performance.
Crucially, it didn’t require a high rent to achieve strong revenues. By maintaining consistency in our rent expectations and operating within a known financial model, we were able to optimize performance across the board.
Clustering and Brand Recognition: The Urban Advantage
One factor that supported these results was our decision to cluster sites within a single city. As our presence grew, so did brand familiarity. Each new opening benefited from the marketing halo of the last.
Not every hospitality business can do this within a city. For some, regional clusters may work better—say, a presence across Bristol, Bath, Cardiff, and Cheltenham. Either way, the concept holds: opening new sites in markets where your brand already has recognition shortens the maturity period and increases revenue reliability.
Understanding Maturity Periods and Growth Plateaus
New sites follow a growth curve. In the early days, it’s not uncommon to see 10–20% month-on-month growth. But this doesn’t last forever. Eventually, the growth levels out, settling into single-digit territory—often 2–5%.
Understanding where and when your sites typically plateau is critical. It lets you model more accurate revenue expectations, plan working capital, and assess whether your rent fits the long-term financial profile of the site.
Modelling Smarter: Build Around Realistic Revenue Windows
The biggest takeaway from our experience was the value of grounding your rent decisions in your own operational data. Our average revenue range across sites was £600k–£800k. That became our baseline.
If we were presented with a site requiring £100k in rent, we’d now model whether a £900k–£1M revenue level was achievable. And unless we had hard evidence to suggest we could hit those numbers, we’d walk away.
Why? Because the risk was too high. Sticking to a known, proven revenue range and working backward from there gave us certainty.
When the Model Does Work at High Rents
Of course, there are outliers. We’ve seen hospitality operators in premium shopping centres paying £150k–£200k in rent and still banking £1M in EBITDA. But those sites typically generate £4M+ in annual revenue. That’s a whole different game.
If your concept, brand, and operational model support that kind of performance, then yes—higher rents may make sense. But most independents and smaller chains won’t consistently hit those heights. And even if they do once, replicating that magic is a monumental challenge.
Final Thoughts: Use Your Data, Not the Landlord’s Optimism
When landlords pitch spaces, they often sell a dream: footfall projections, demographic stats, potential turnover. But as operators, the best data we have is our own. Historic performance across sites, known revenue bands, and real rent-to-turnover ratios provide a foundation we can trust.
If you can build a model that works at a 5%–10% rent ratio, based on realistic revenue expectations, you’ll not only protect your margins—you’ll unlock growth on your terms.
Key Takeaways for Hospitality Operators
Rent-to-Turnover Ratio Matters: Aim for 5% or lower for best-in-class performance; 10% is typically the upper limit.
Base Rent Consistency is a Strategic Advantage: Sites with £30k rents outperformed those with £100k+ rents—even with lower revenue.
Model Backwards from Revenue, Not Forward from Rent: Set revenue targets first, then determine what rent those can support.
Cluster for Brand Efficiency: Opening sites in known markets accelerates maturity and improves profitability.
Let Performance Drive Expansion: Don’t assume higher rent = higher success. Let your data lead.