The risk and reality of retail closures

By : J. David Chapman/July 31, 2025

From a real estate perspective, retail—including restaurants and bars—has always been one of the riskiest tenant categories. These businesses typically require significant upfront investment for tenant improvements with specialized buildouts like kitchens, exhaust systems, ADA compliance, and customer restrooms. For a property owner, the financial exposure starts long before the first plate is served or the first cocktail is poured.

Even more daunting is the survival rate. Despite the popular myth that 90% of restaurants fail in their first year, more recent data tells a slightly less grim story: about 17% close in year one, with nearly 50% shuttered by year five. Broader retail shows similar volatility—over 40% fail by the fifth year, and nearly 60% by year ten. The risks are real, and for landlords and investors, they translate into prolonged vacancies, expensive reconfigurations, and diminished cash flow.

Still, as a developer, business owner, and someone who cares deeply about local economic development, I try to take a broader view. When a restaurant or bar closes in a small urban district, it tends to generate an outsized reaction. Social media fills with speculation. People assume the worst: the economy is tanking, downtown is in trouble, the dream is over.

But the truth is more nuanced. Business failure is part of a functioning entrepreneurial ecosystem. Risk-taking is essential, and unfortunately, so is occasional failure. In fact, a city that never sees a business fail probably isn’t taking enough chances to foster growth in the first place.

That said, closures in smaller downtowns carry real consequences. Restaurants often serve as anchor tenants that drive foot traffic to surrounding retail. Their loss can ripple through the local economy—hurting neighboring businesses, eroding confidence, and impacting city sales tax revenues.

So yes, I notice when a beloved restaurant closes. It stings. But I try not to view it as an indictment of downtown development. Instead, I see it as a reminder of just how hard small business can be—and how critical it is to support entrepreneurs with the right tools, incentives, and infrastructure.

Because in the world of retail real estate, it’s not just about finding tenants. It’s about building ecosystems that can weather the natural cycles of risk, reward, and reinvention.

J. David Chapman, Ph.D., is chair of finance & professor real estate at The University of Central Oklahoma (jchapman7@uco.edu).