The restaurant business has always been subject to fads. One year, fish tacos are all the rage; the next year better burgers are. Whether it’s avocado toast or Korean street barbecue, the hope of every new concept is to find a permanent seat at the American table.
One of the hottest trends right now in the restaurant business, and retail in general, is the food hall. Cushman & Wakefield first reported on this trend in November 2016; since then food halls’ popularity has only continued to rise. Food halls are popping up around the United States at a breakneck pace; at the current rate, by 2020 the marketplace will have tripled in size in the span of just five years.
The popularity of food halls with retail landlords and developers is easy to understand. They resonate with consumers, drive foot traffic, and are an ideal fit for a marketplace in the midst of new Commerce-driven disruption. There are three ways to lure shoppers to your store or shopping center; convenience, value or experience and eCommerce has made its strongest inroads with convenience. Food halls offer experience and food halls are eCommerce-proof.
But food halls aren’t just a retail trend. The food hall has emerged as the ultimate amenity for mixed-use, office, and multifamily projects. Two years ago, the trend was already starting to play out in market cap in excess of $800 billion, Google could have purchased any building they wished for their Manhattan campus. They chose this one, in part, because of the amenity downstairs. The all-cash deal for $2.4 billion is the second-priciest building sale in New York history.
Only four food hall projects throughout the United States have closed over the past two years since our last inventory; one of them was only a temporary project that didn’t fail. All three of the projects that did fail were poorly funded, smaller projects in questionable locations in terms of population density. Two were mini food halls located in mostly residential San Francisco neighborhoods where foot traffic was minimal. The other was a small project in Portland, which reportedly ran out of funding to deal with a major construction issue.
Critics of the trend often cite the challenges of a beleaguered restaurant industry as reasons to be wary of the food hall trend. They quote the fact that the failure rate for stand-alone restaurants, particularly in some of the nation’s most expensive cities, seems to be skyrocketing (any stats). Also, increased competition, higher labor costs, and higher rents are all cited as real challenges facing the industry.
Yet those reasons are precisely why we see the food hall trend flourishing. The food hall is about more than just real estate. The food hall is a structured concept that gives restaurateurs an overall cheaper operating model, requiring significantly less in start-up capital. It is true that the marketplace has experienced some overexpansion. And it is true that the failure rate of stand-alone restaurants is on the rise. It is also true that the failure rate of stand-alone restaurants is on the rise due, in part, to competition from food halls.
Food halls are not a fad. They represent a new operating model that provides users lower costs and (if done right) significantly higher levels of foot traffic. For developers and landlords, food halls mean a relevant tenant that drives foot traffic and strengthens their commercial real estate projects. For a growing class of food hall operators, it represents immense opportunity; a model in which intensive knowledge of a local food scene and masterful skill in food and retail operations can combine for a lucrative and necessary service that is only growing in demand. For the end users—the restaurateurs and vendors that occupy the stalls—food halls represent a cheaper and more flexible alternative to investing in standalone restaurant space.
Food halls are not a fad— Food halls are the sharing economy for restaurants. They are here to stay and, for most of the United States, the trend has only just begun.
Please find the full report on the Cushman & Wakefield website.