Retail Trend: Scramble for Small Restaurant Space Creates a Landlord’s Market
Millennial diners want their quinoa bowls in a hurry and that’s good news for retail real estate companies. Fast casual restaurants – the popular source of healthy, affordable fare – are hungry for 1,500 to 3,000 square foot spaces in shopping venues nationwide. They’re competing with each other and with nail salons, spas and downsizing retailers who are eying the same sized spaces, creating a hot market for retail leasing. Nation’s Restaurant News reports that this competition has “driven lease rates to astounding levels” and created a “landlord’s market.” (Read more: http://www.eater.com/2016/4/28/11523694/restaurant-real-estate) And Jesse Tron, spokesperson for International Council of Shopping Centers calls the current climate “hyper-competitive.”
Tenants in this niche within our leased and managed portfolio include Saladworks, Good Mood Restaurant and Bubbakoo’s Burritos. As tenant representative we work with Dig Inn, the hip, highly popular Boston-based chain, currently on the move into new East Coast markets. So, naturally, we’re staying focused on what’s happening with fast casual restaurants.
Efficient and Appealing, Fast Casual Tops the Industry in Growth and Sales Volume
Led by the rise of Chipotle and Panera in the early 90’s, fast casual fused the speed and convenience of fast food with menus featuring healthy fare. It’s a winning combination, growing the category 550 percent since 1990 and driving the annual growth of fast casual sales to 11.4 percent in 2015, double the rate of any other restaurant segment. Fast casual, which now comprises 7.7 percent of the industry, is expected to lead restaurant sales through 2022, as Millennial diners take healthy dining further with demands for food that is locally raised, according to sustainable and humane practices.(Read more: https://www.washingtonpost.com/news/wonk/wp/2015/02/02/the-chipotle-effect-why-america-is-obsessed-with-fast-casual-food/?utm_term=.cd1fb581cc35)
Consumer appeal lies at the core of fast casual’s success, but it’s not the sole factor in this segment’s growth. Operationally, the concept is amazingly efficient. Sit-down diners are served in under 8 minutes and 50 percent of orders are take-out. This means a high volume of business can be transacted in a space about one-third the size of the average casual restaurant.
National Brand vs. Local Favorite: Which One Gets the Lease?
Faced with tenants vying for space, managers of retail real estate find themselves
weighing a number of factors when awarding a lease. Fitting out a restaurant space
even one of modest size – is more expensive than a retail store or an office. Ventilation, special kitchen requirements, and local regulations spike construction costs. A successful fast casual establishment, however, can offset that initial investment, not just in rent but in driving shopping center visits which, in turn, attract more demand for leases.
The choice is often between an independent or regional chain and a big national brand. Both bring positive buzz but savvy landlords, especially in the case of shopping centers or malls, tend to choose big names. Brand recognition, a record of success and deep pockets tend to win out. Emerging retail areas in urban neighborhoods, where there may be resistance to chains, may be the exception to this trend.
What’s Ahead: Fast Casual – A Role in Reviving the Mall
As brick-and-mortar stores shutter or scale back, food and entertainment may breathe new life into malls and shopping centers. Ron Ruggles of Nation’s Restaurant News sees a rosy future for retail venues that provide an inviting mix of entertainment, food and shopping to create a community experience that online can’t match. Fast casual, with its Millennial appeal, will have a big role to play in this new environment that replaces transactions with experiences.