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May 11, 2018

Food halls popping up all over, in urban and suburban projects

By LYNN PORTER
Journal Staff Reporter

Photo by Suzi Pratt [enlarge]
Crosta E Vino is in the food hall at Lincoln Square South, which opened in January in Bellevue. The food hall is owned by Ascend Hospitality Group of Bellevue and Jeffrey Frederick of Elite Brand Hospitality in Las Vegas.

Food halls are the hottest trend in retail, according to Garrick Brown, vice president of retail intelligence for the Americas with Cushman & Wakefield.

In 2016, there were about 100 in the United States but by 2020 he expects the total will top 300, given the current trajectory.

Between 30 and 40 food halls have opened annually since 2015, but Brown says that pace will accelerate.

Foodie culture and millennials' desire for cool and authentic places are driving the growth, he said. That's great for restaurateurs because startup costs are a fraction of what a standalone restaurant would cost. The popular halls also bring in lots of people, which benefits nearby retailers.

Food halls don't just backfill vacant space, said Brown, “they actually drive foot traffic and are highly relevant retail.”

In both urban high rises and suburban mixed-use complexes, the halls help to lease the rest of the space.

Brown said licensing space in food halls is really taking off. Landlords or owners license the use of a space for a period of time in exchange for payment from the vendor. But the licensee has fewer real estate rights than with a traditional lease: The vendor has to meet certain volume thresholds to stay in the food hall. The landlord can try to help a struggling vendor, but if that doesn't work, he said the landlord won't be left with “dead weight dragging down the food hall.”

Brown called chef halls a peripheral trend. These are essentially pop-up restaurant spaces with rotating chefs, reminiscent of supper clubs in the past, where different dishes were served every night. In this case, you get different chefs.

Chef halls will be “embraced by the most hardcore foodies,” he said, “and the charm of it is that you're going to the same place and having a different experience every time.”

Brown talked with the DJC about the trend. His answers are edited for length:

What's the right way to do a food hall?

Food halls are not food courts. So don't try to fit round pegs into square holes by using existing restaurant or food court models. Understand the fundamentals of food halls: design, operations and tenanting.

Food halls attract different tenants and customers. The space needs to be inviting and “linger-able,” but must be efficiently designed for the vendors because restaurant margins are really tight, and food halls usually sell lower-priced items.

You need to efficiently fit as many vendors in a small space as you can to keep the rents low so everyone can make some money.

The tenants tend to be higher risk and want shorter-term and more flexible leases.

Any operating tips?

The dilemma for developers is whether to operate the food halls themselves or lease to a third-party operator who handles the brain damage of micro-leasing and tenanting. Unless a developer has extensive ties to the food community and understands the local food scene, an operator may be the way to go.

However, this also impacts profit. If the food hall's value is in attracting tenants, say in an office high rise, a developer probably wants to go with an operator.

If the landlord wants to make money on the hall itself, then they should likely operate it themselves. But the learning curve can be costly, so consider hiring knowledgeable consultants.

What areas are getting food halls?

New York has historically led the nation, but new projects are popping up across the U.S. They used to be solely an urban phenomenon. Now there are suburban projects — in markets as diverse as Boise and Omaha.

Was the Chelsea Market food hall a big reason why Google bought 75 Ninth Avenue in New York?

It was a major factor. It is an amenity for employees. Tech employers for years have offered the best amenities on-site to keep the best employees, and have given them free food, usually in in-house cafeterias.

Yet, increasingly tech employees want outside food options, even if they have to pay.

The food hall that opened in the Twitter Building in San Francisco in 2015 is very popular with employees, despite the free food in an excellent (company) cafe upstairs.

Retail is struggling, so isn't it risky to open food halls?

Commodity retail is struggling. Certain categories hard hit by technological advances are struggling. But not all retail is struggling. Experiential retail is white hot and food-related retail is as well. Food halls drive foot traffic. It used to be that people went to shopping centers to shop and eating was a secondary motive. Now, increasingly, people go to shopping centers to eat, with shopping as a secondary experience.

Food halls are an optimal tenant in the current environment.

What's the history behind this trend?

Food halls are a new version of the ancient public market. Some (U.S. markets) like Boston's Faneuil Hall and Philadelphia's Reading Terminal go back generations. The first of the smaller versions in the U.S. was Todd English's Food Hall, which opened in 2008 at the Plaza Hotel in New York City. His inspiration was the food hall at Harrods Department Store in London, which goes back to the turn of the 20th century.

Food halls have been in Asia and Europe for a few decades, and are experiencing heightened popularity. The American food court is the aberration globally.

Is there an upside for restaurants?

Cheaper startup costs, greater flexibility and typically stronger foot traffic than individual locations make food halls ideal for restaurateurs, ranging from startups to white-tablecloth chef-driven concepts. They also make perfect incubators for chefs to try one-off fast casual concepts.

What about suburban food halls?

They are increasingly opening as amenities in suburban mixed-use developments and as (celebrity chef driven and branded) concepts in suburban malls. This is ramping up dramatically, but suburban Orange County (in California) has had at least a handful of successful food halls going back a couple of years. If the density is already there or if the food hall has the scale, scope and popularity to become a destination and drive traffic, suburban communities can support food halls.

Are millennials driving the trend?

Millennials are a large part of it, however, the rise of foodie culture began with the boomers, and food halls appeal to all age groups.

Are colleges opening food halls?

We are starting to see university-based projects. Driving this is younger people looking for affordable food and great environments in which to hang out and socialize.


 


Lynn Porter can be reached by email or by phone at (206) 622-8272.


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