Franchise Real Estate Strategies: The Importance of Choosing a Location for Your Business
When it comes to franchise ownership, the age-old adage "location, location, location" isn't just a cliché—it's a fundamental truth that can make or break your business. While franchising offers entrepreneurs the advantage of a proven business model and established brand, even the strongest franchise system can struggle in the wrong location.
As you navigate the franchise buying process, selecting the right location represents one of your most critical investment decisions. Unlike independent businesses that might adapt their concepts to fit available real estate, franchises typically have specific location requirements designed to support their proven operational model. Your success as a franchisee depends on finding a location that not only meets these requirements but also positions you for maximum profitability in your local market.
Before You Start: Understanding Your Franchise Requirements
Before signing a lease, check your franchisor's territory restrictions (FDD Item 12) and space requirements. A quick-service restaurant might need 1,500 square feet, while a fitness center could require 4,000.
You'll also need to consider zoning regulations and industry-specific needs, which vary for retail, service, and food franchises. The strategies below will help you choose a location that sets your new franchise business up for success from day one.
Market Analysis Fundamentals
Finding the right location is crucial. Start with these practical steps.
- Check local demographics. Use census data to find areas where your target customers live. A daycare franchise needs families with young children as potential customers, while a luxury spa requires higher-income residents for a strong customer base.
- Visit competitor locations. Observe customer traffic at different times, note peak hours, and compare pricing. Too many similar businesses nearby is risky for business owners, unless your franchise brand offers something clearly better.
- Track foot traffic patterns yourself. Count cars and pedestrians at different hours. A breakfast restaurant needs strong morning traffic, while retail franchise units may depend on weekend shoppers.
- Ask your franchisor for location guidance. Most have specific criteria for a new location based on their successful business model, like minimum population density or average household income.
Site Selection Process
After you've completed your market research, it's time to choose the perfect spot for your franchise site.
- Work with real estate brokers experienced in franchising. General commercial real estate agents may not understand franchise-specific needs.
- Explore commercial real estate marketplaces. Platforms—like LoopNet—allow you to search properties based on your specific criteria while getting a sense of market rates across different areas.
- Ask the franchise development team for preferred brokers. These professionals already know the franchise system requirements and can save potential franchisees time.
- Create a checklist of must-haves. A restaurant franchise may need proper kitchen ventilation, while a retail store might require at least 100 feet of storefront visibility.
Lease Negotiation Tactics
Here are key points to focus on when signing your rental agreement.
- Cap yearly rent increases
- Limit increases to 3% or tie to Consumer Price Index (CPI)
- Avoid uncapped percentage increases
- Request build-out money
- Ask for $30-50 per square foot in tenant improvement money and two to three months free rent during construction.
- Check Common Area Maintenance (CAM) charges
- Cap yearly CAM increases
- Remove capital improvements
- Ask for yearly CAM reports
- Understand NNN (triple net) lease obligations
- Get real estimates of tax, insurance, and maintenance
- Try for a gross lease on your first location
- Ask to review charges with your accountant
- Match lease to franchise agreement
- Get 5+ years with two to three renewal options
- Line up renewal dates with franchise agreement
- Consider shorter terms (three years) for first locations
- Plan an exit strategy
- Add right to leave if sales are low after 18-24 months
- Get right to sell to qualified buyers without high fees
- Add clause to exit if anchor stores leave
- Get exclusive use rights
- Block landlord from renting to competitors
- Define your business type broadly to avoid loopholes
Location ROI Calculation
Here's what to consider when calculating if your franchise location will actually make money.
- Compare premium vs. budget locations
- Higher rent often means better visibility and traffic
- Low-rent areas may require more marketing dollars
- Calculate total occupancy cost as percentage of expected sales (aim for 8-12%)
- Factor location costs into your business plan
- Include all location-related expenses (rent, CAM, taxes, utilities)
- Add location-specific staffing costs based on local wage rates
- Budget for area-specific marketing needs based on visibility
- Run break-even analysis
- Calculate monthly sales needed to cover all fixed costs
- Compare to average unit volumes of nearby franchise locations
- Add three to six months of extra capital in case of a slow start
- Use simple payback period formula
- Divide total initial investment by expected annual profit
- Premium locations should pay back within two to four years
- Consider walking away if payback exceeds five years
- Track unit economics by location type
- Compare performance across different location types (mall, strip center, downtown)
- Identify which locations deliver the best profit margins, not just the highest sales
- Use data to guide future expansion decisions
Franchisor Support and Resources
Most franchisors provide location assistance to help franchise owners succeed in their new business ventures.
- Use franchisor site selection expertise
- Request their location criteria checklist for your target market
- Ask for performance data from similar locations
- Get access to their proprietary mapping tools
- Leverage franchisor real estate partnerships
- Use their preferred real estate brokers who know brand requirements
- Access potential discounted lease rates through national relationships
- Follow the approval process
- Submit locations early for feedback before signing anything
- Understand their deal-breakers vs. preferences
- Allow two to four weeks for typical approval timelines
- Balance franchisor input with local knowledge
- Do your own due diligence even with "pre-approved" sites
- Document why your site meets brand standards if initially rejected
- Access funding connections
- Get introduced to lenders familiar with franchise ownership
- Use franchisor relationships with equipment leasing companies
Multi-Unit Franchising Location Strategy
Entrepreneurs that are planning to open multiple franchise locations should decide between clustering or spreading out units.
- Cluster locations within a 10-15 minute drive. This builds local brand recognition and makes management easier—many successful multi-unit owners can visit all their locations in a day.
- Optimize operational efficiency. Sharing resources like staff, vehicles, or equipment can reduce costs by 10-15%. You might also negotiate better vendor rates by bulk ordering for multiple locations.
- Avoid cannibalization. Use mapping tools to analyze customer zip codes and ensure new locations don't steal too many sales from existing stores. A new location should pull no more than 10% of revenue from another location.
Turning Location into Long-Term Franchise Success
Your franchise location decision sits at the intersection of science and art—balancing data-driven analysis with entrepreneurial intuition. The right location doesn't just give your franchise a strong start; it creates a foundation for sustainable growth throughout your franchise agreement term and beyond.
Ready to take the next step in your franchise ownership journey? Visit BizBuySell's Franchise Directory to find brands that can help you realize your entrepreneurial dreams.