Learn Spanish (Latin America): ¿Este restaurante es nuevo? Sí, lo es.

In English, we can just answer 'Yes, it is' and drop the adjective. Spanish does not let you leave the verb ser hanging like that. You must use the neuter pronoun lo to refer back to the dropped adjective (nuevo). You can think of it as meaning 'Yes, it is that.'

Does lo change to la or los if the subject is feminine or plural?

No, it always stays as lo in this specific structure. Because it is replacing the idea of the adjective rather than a specific noun, it acts as an invariable neuter pronoun. For example, if you asked if a house (casa) was new, the answer would still be Sí, lo es.

Why do we use es instead of está? Isn't being new a temporary state?

Even though a restaurant will not be new forever, being new is treated as a defining characteristic or quality of the place right now, rather than a temporary condition or mood. Because it is a characteristic, we use ser (es) instead of estar.

Why is it Este restaurante and not Esto restaurante?