Chains such as Red Lobster and TGI Fridays filed for bankruptcy this year and together closed more than 175 restaurants. Red Lobster went bankrupt due to mismanagement under a previous owner, global shrimp supplier Thai Union, while TGI Fridays fell under private equity owner TriArtisan Capital Advisors. Denny’s is also closing 150 restaurants.

All three typically target low- and middle-income customers, and the chains are also struggling as their customers are under pressure. Diners are choosing to eat at home or at cheaper fast-food and fast-casual chains such as Chick-fil-A and Chipotle, which can be more profitable than table service.

“Family dining has seen the worst of it post-pandemic,” Denny’s CEO Kelli Valade said during an earnings call last month. Customer traffic to full-service restaurants like Denny’s is down 0.5% so far this year, while it is up 3.2% at fast-casual restaurants and 0.6% at fast-food restaurants, according to Placer data. ah.

But these sit-down restaurants don’t stay empty for long. In many cases, landlords are eager to replace aging chains because they can find new tenants who pay higher rents and attract more customers.

“This is not an ‘oh my God’ moment. This is completely expected,” said Jeff Kreshek, senior vice president at Federal Realty, which owns a vacant Red Lobster property in Maryland and two TGI Fridays real estate locations that remain open in Maryland and California. “I see this as an opportunity. It is property that has not been available to the broader market for twenty, thirty years.”

In the past, these restaurants were often replaced by another restaurant chain, with tables to sit at and servers to bring out the food. But now fast-food and fast-casual chains are taking over these spaces and building more drive-thru streets. Chipotle is building 4,000 new locations, most with drive-thru lanes, while Chick-fil-A is building new spots with four-lane drive-thru lanes.

Drive-thru locations are in many cases more profitable than sit-down restaurants because they are smaller and require less staff and maintenance.

“A lot of former casual dining restaurant operators are being taken by In-N-Out, Whataburger, Chick-fil-A and Raising Cane’s that weren’t really competing for that real estate 10 years ago,” says Matt Mandel. a senior vice president at CBRE, specializing in retail and dining.

Smaller restaurant chains are also expanding, such as Brazilian steakhouse chain Fogo De Chao and First Watch, a breakfast chain, according to NorthMarq, a commercial real estate firm.

First Watch has opened 13 restaurants in locations previously occupied by other restaurants, and these are some of the best-performing locations across the company, CEO Chris Tomasso said during an earnings call Thursday.

In October, First Watch opened a restaurant in Bel Air, Maryland, in a location previously occupied by a Red Lobster. At 8,000 square meters it is the largest First Watch. In March, the company opened a restaurant in Franconia, Virginia, previously occupied by a TGIfridays.

First Watch plans to open more than 25 new locations in vacant restaurants, Tomasso said.

It’s currently not easy to find vacant space or build a new restaurant from the ground up.

Demand for vacant space in the United States is high and supply is tight. The US retail vacancy rate is 4.1%, the lowest figure in decades. Years of little construction and higher borrowing, labor and construction costs have limited supply. According to commercial real estate firm CBRE, completed construction last quarter reached the lowest amount in more than a decade.

Many of these restaurant locations are also attractive to potential tenants because they are freestanding buildings and are not located at the back of dilapidated indoor shopping centers. Indoor shopping centers have had a difficult time in recent years and according to CBRE, the vacancy rate in shopping centers was 6.5% last quarter. Macy’s, JCPenney, Nordstrom and others have closed hundreds of stores in malls as online shopping has grown to about 16% of retail sales. Real estate research firm Green Street estimates that around 150 enclosed shopping centers have closed since 2008, leaving around 900 left.

Most closed restaurants are also located on busy streets with large parking lots or adjacent to a shopping center, making them attractive locations.

“There is a lot of demand,” says Mandel. “A lot of that comes down to the lack of development over the last five to 10 years.”

Correction: An earlier version of this article misstated the location of a First Watch restaurant. It is located in Bel Air, Maryland.