Home Fairfield CBRE report details the restaurant industry’s impact on commercial real estate

CBRE report details the restaurant industry’s impact on commercial real estate

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Restaurants account for 17% of U.S. retail sales, more than any other retail sector and restaurant sales growth has outpaced overall U.S. retail sales gains in recent years, according to the new CBRE report “2019 Food in Demand Series: Restaurants.”

But while the continued expansion of this industry shows no signs of abating, changes in how restaurants operate could have an impact on commercial real estate.

“While restaurants are less vulnerable than other retail categories to e-commerce encroachment, they’re still going through dramatic changes driven by advancements in technology and changing customer tastes,” said Meghann Martindale, CBRE’s global head of retail research. “Retail-center owners will need to invest a lot of thought into which type of restaurant concept best fits their center and its clientele, as well as how to balance their center’s mix of food and beverage so that it doesn’t tip too far in any direction.”

Among the changes impacting the restaurant industry is the proliferation of third-party delivery services, including Grubhub, Seamless, Eat24 and DoorDash, which had a 58% share of the meal-delivery market in 2018 and is forecast by CBRE to grow to a 70% share in 2022. CBRE pointed out an emergence of delivery-only restaurants, also known as ghost kitchens, that are locating and operating in industrial and secondary retail space for lower costs.

“This is leading to the reuse of underutilized real estate in shopping centers, sometimes carved out of repositioned anchor or big-box spaces, so long as the ghost kitchen is within quick-delivery range of a major consumer trade base,” the CBRE report said, noting that ghost kitchens can open with as little as 200 square feet of space on a budget that can be as low as $20,000.

However, Jessica Curtis, senior vice president and restaurant specialty practice leader at CBRE, did not foresee the decline of traditional restaurants with the rise of delivery-only outlets.

“Restaurants are one of the few places that offer a communal gathering spot and allow for face-to-face interaction,” she explained.

And this leads to two additional restaurant trends tracked by CBRE: the rapid rise of the fast-casual eatery — roughly four out of five restaurants opened by top-500 chains last year were fast-casual establishments — and the increasing presence of so-called “eatertainment” outlets that combine food and beverage service with live and virtual sports. The eatertainment approach is gaining a stronghold via smaller locations in urban centers via chains, CBRE added, with office workers and city residents embracing the mix of meals and play. CBRE cited three chains as making inroads within the urban eatertainment sector — Topgolf, Dave & Buster’s and Punch Bowl Social — but none of these are currently operating in either Westchester or Fairfield County.

But can the growth trajectory for the restaurant industry continue without fear of a downturn?

“There are only so many dining dollars to go around in a given market,” Curtis admitted. “And yet, restaurant sales are up year over year.”

Within this region, Curtis stated that while “people can argue that Stamford or Westport have too many restaurants,” Fairfield County’s dining scene is betraying no evidence of oversaturation. In Westchester, she added, oversaturation is unlikely because many residents in the lower section of the county are able to go into New York City for dining out.

Moving forward into 2020, the CBRE report warned that the “demand for restaurant space is increasing without a corresponding supply increase. Compounded by rising construction costs, this is resulting in higher occupancy rates and rent inflation.”

But despite that challenge, CBRE’s report praised the restaurant industry as a keystone for the commercial property sector.

“Although restaurant deals remain risky, complex and expensive to build out and operate, landlords are increasingly structuring creative deals to capitalize on expansion of this segment while other retail uses contract,” the report concluded. “Restaurants are an attractive new class of anchor tenant that draws customers to retail properties, promotes social connection and is a key component of successful placemaking.”

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