Food Halls May be Popular Trend but Not a Silver Bullet for Vacant Retail Space
Rather than "Location, Location, Location" Mantra for Successful Food Halls is "Programming, Programming, Programming"
The dissolution of Anthony Bourdain’s Pier 57-based food hall -- for being too "challenging," according to Eater.com coverage -- reflects a lesson that developers and investors are learning across the country.
Though trendy and potentially lucrative, food halls are challenging to develop and run successfully.
Manhattan is currently the food hall capital of the world, with the highest per-capita of food halls globally, according to Garrick Brown, Cushman & Wakefield’s head of retail research for the Americas, who has been closely following the food hall trend. There are currently 160 food halls in operation nationally in 2017, according to Cushman & Wakefield, up from 125 in 2016. About 50 more are under construction.
In New York City alone, there are 27 open as of this year, with another 35 under development. Though the city has not yet reached a saturation point, "we might start seeing separation from the winners and losers," Brown noted.
New York City developers Elad Group and Silverstein Properties announced on December 11 that they’ve inked a lease for 30,000 square feet for a two-story Morton Williams-branded gourmet market and food hall concept at the base of One West End, a 246-unit condominium tower located in the Lincoln Square submarket. The market is expected to open in summer 2018.
"When looking for a tenant to occupy this space, it was important for us to bring in a retailer that would be a true amenity for residents of One West End and the surrounding area," David Marks, development manager at Silverstein Properties, said in a release.
"Everyone wants to do food halls," said Alberto Sacal, founder of Mercado Roma, a community-focused food hall in Mexico City. "We need to find balance -- there is over-use of the word. Everyone says they have food halls but they are not food halls. What we can offer is food- and lifestyle-related," he said, referring to the 18,836-square-foot, three-floor space that features 52 local vendor stalls, two restaurants and roof deck and vertical vegetable garden. Sacal spoke at an ICSC New York Deal Making panel about food halls that took place earlier this month.
Increasingly, food offerings are considered "the ultimate amenity" for office and multifamily properties as well.
"Imagine the appeal to a multifamily developer of being able to say you’re a great corporate citizen: that your LEED-Silver building has a food hall sourced with ingredients from your rooftop garden," Brown said. But landlords must look at how it impacts financing of the building, Brown cautioned. A food hall can attract a big tenant, then you can play with financials -- but that only works for properties that are already profitable, he added.
"If you are running flat or below profitability, I don’t see how a food hall happens in your office building," said Brown.
There is no set template to the success of food halls, sources said. When added as an amenity to an already-existing building, food halls tend to be somewhat smaller, usually under 20,000 square feet. Mid-size food halls, those between 20,000 and 30,000 square feet, are most common.
"Food halls are not for everyone," cautions Phil Collichio, founder of Collichio Consulting, an advisory firm that focuses on partnerships and joint ventures between property owners and chefs and restaurant operators. "They do not generally flow on leasing models, more so on the licensing model. The licensing model gives landlords the opportunity to act quickly if a vendor is not hitting its marks. Operation is incredibly important. George is one of only a tiny handful of people who can run it as one seamless operator. Not many food operators are that skilled."
Collichio was referring to George Chen, founder of China Live, a 30,000-square-foot San Francisco-based food hall focused on Chinese culture. Within the space is an event hall, a 14,000-square-foot retail marketplace with interactive tastings, tea emporium, three bars and three restaurants.
"China Live is like the Apple store for Chinese products. We can’t just be a lunch and dinner business, we need to be operating at all hours of the day," Chen says. "The square footage of the restaurant has been done in reclaimed Chinese furniture. You can’t just transplant an idea into a market -- you have to use authentic local ingredients and create concepts that are synergistic with your market."
"It is all about programming, programming, programming," Collichio agrees. "Consider live performance in the evenings -- be it music, comedy or podcasting -- that is something the Internet can’t give you."
While Chen runs his own food hall, some developers opt for a third-party operator to run leasing and management of the space.
"Skilled operators have proven to be in short supply but highly worth the cost. If you are in the office or multifamily sector, chances are you need an operator -- in a food hall you can have something like 30-short-term smaller leases, plus there is the time expense of managing the property," Brown said.
Other questions to consider include whether there is an individual TI for each tenant; whether operational design is set up as run by one owner/operator or via a third-party operator; and how to allocate shared space for freezers, coolers, lockers.
"Most are still trying to figure it out," Brown said. "There is also the question of liquor licenses. Do you set your own or do you get one of or each vendor? What about percentage rents? Or are developers going along on a ticket system for the whole space?"
"The food hall is not a silver bullet for vacant retail space. A lot of demand is from food trucks or new people with little credit. Food Halls can be a great incubator and as a developer you must know there will be transience, so you must curate events and keep promoting the space," says Herb Heiserman, managing principal at Streetsense, a consulting firm for experiential strategy and design.
Heiserman contends that in the next year, the Food Hall concept will evolve into seven different categories. Those that have already popped up include TOD food halls, community-focused food halls, food halls targeting tourism and university-oriented food halls.