F
ranchisees and franchisors are pushing forward with plans to open over 20,000 establishments by 2025, despite the challenges of a tough real estate market. Higher costs and limited available space have made it more difficult for franchisees to find suitable locations. Eric Ongaro, president of Olio Development Group, notes that the current landscape is as challenging as ever, with many waiting on the Federal Reserve's next move.

    "We're waiting to see what the Fed does with interest rates," Ongaro said. "As the year goes on, people will become less optimistic about a rate decrease, making it harder to take a chance on real estate speculatively." Matt Kramer, managing partner at Century Partners, agrees that uncertainty is a major issue in today's market.

    "We work with both legacy brands and emerging concepts," Kramer said. "Legacy brands have a track record of performance, while emerging brands are riskier due to their uncertain futures." Ongaro notes that this increased uncertainty has put more financial pressure on deals, making it harder for franchisees to service debt and afford lease payments.

    Franchisees are finding ways to adapt to the challenges by opting for smaller prototypes or utilizing existing buildings. "We're seeing brands cut down on footprints by 30-40% to increase flexibility," Ongaro said. Kramer notes that costs, particularly land and construction costs, remain a major issue.

    "Feedback from franchisees has been that it's generally too expensive," Kramer said. "Tariffs are also starting to impact FF&E costs." Despite these challenges, brands are still managing to open locations, with the International Franchise Association estimating 20,000 new establishments in 2025.