Food hall Flexibility: A promising response to the pandemic

COVID-19 has brought into question how big a role food-and-beverage tenants will continue to play in the long-term vision of using socially oriented, experiential concepts to revive retail real estate.  

The restaurant industry, like many other parts of the economy, enjoyed robust growth until the pandemic struck. Late last year, the National Restaurant Association projected that restaurant sales would increase 4 percent to $889 billion in 2020, based on an upbeat consumer sentiment and an expanding economy. The association also predicted that sales would hit $1.2 trillion by 2030.

But the lockdown in March and the continued spread of the virus have so far forced at least 15,770 restaurants to shut down permanently, according to Yelp. To date, more than 10,000 still remain closed on a temporary basis. To what degree consumers will feel comfortable returning to restaurants without a vaccine – and whether they’ll have the discretionary income to afford eating out – remains unknown.

Food halls, however, may still deliver on the promise of experiential retail. Considered one of the hottest food-and-beverage concepts in the recent past, food halls provide tenants, landlords and consumers with an economic and operating flexibility that isn’t found in conventional restaurant settings, says Phil Colicchio, executive managing director of specialty food and beverage, entertainment, and hospitality consulting retail services for Cushman & Wakefield.

“A lack of interest in food and beverage isn’t behind the catastrophe in the restaurant world, nor is the lack of spending,” Colicchio says. “Food and beverage amenities are still important to real estate development, and food halls are a lower risk way to provide those amenities right now.”

Roughly 223 food halls were operating before the pandemic hit, according to a recentCushman & Wakefield report. About 80 percent remain open in some form or fashion today, adds Colicchio, largely by taking advantage of outdoor patios or by reconfiguring indoor seating. Vendors also were able to transition to a ghost kitchen model for take out.

The 20 percent that have closed are primarily in urban locations that depend on office workers, Colicchio says. Still, the pandemic likely accelerated the predetermined fate of some food halls. In New York, Gansevoort Market in the Meatpacking District closed after six years, although Eater New York notes that the project had struggled to find traction and competed with nearby Chelsea Market food hall.

More than 165 new food halls were being planned before the pandemic, according to Cushman & Wakefield. While some are on hold, many food halls are still moving forward. The group behind Gansevoort reportedly plans to open a food hall in New York’s Oculus shopping and transit center at the World Trade Center. Projects nearing completion or that recently opened include Chattahoochee Food Works in Atlanta, Salt City Market in Syracuse, N.Y., Dr. Murphy’s Food Hall in Chicago, and Castro Valley Marketplace south of Oakland, Calif.

Food halls provide a hedge for everybody involved in the operations, Colicchio explains. Consumers have access to a handful or more of restaurant options at reasonable price points. Vendors can start a business with an investment of some $50,000, which is a fraction of the usual investment required for a standalone restaurant.

From a landlord’s perspective, having a variety of independent operators lessens the likelihood of an entire food hall going dark even if one or two vendors have to be replaced. Plus, the economic model that Colicchio emphasizes reduces the chance that they’ll be surprised by a sudden downturn in business at the food hall. In return for the development of the various vendor spaces, for example, vendors typically agree to pay around 25 percent of their revenue to the landlord to cover rent, utilities, grease trap cleaning and other common area maintenance expenses. As a result, landlords have the ability to monitor vendor sales and costs.

Food halls aren’t a cure-all for all retail real estate settings, Colicchio acknowledges. But he suggests that well-run projects in good locations offer a better bet than other food and beverage options in the market. “Eatertainment” concepts like bowling alleys that feature “a disco ball and that serve blue drinks” are a short-term trend, not a long-term amenity solution, he states.

I like a blue drink every once in a while, but it’s like an escape room concept – after I go once, I’m probably not going back,” Colicchio declares. “That’s the difference between a trend and a movement.

Do you have a large vacant space in your shopping center or mall? It could be a good fit for a new food hall. Plenty of table space and smaller kitchens might mean you can bring in new food options even during the Coronavirus pandemic. Start finding smaller local and regional food concepts that could be a fit for your food hall. Schedule your free demo today to see how easy your tenant search can be.

August 7, 2020
Barton Strawn

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