A new business model in the restaurant industry is transforming the modern dining experience and increasing demand for mixed-use spaces. Food halls are thriving in primary markets, and the number of these locations is expected to triple by 2020 . Such an explosive growth curve means this craze cannot be ignored, and it presents an opportunity for early market entry and profitability.
But before making plans to capitalize on this trend, it’s important to understand exactly what a food hall is, what is driving demand for this innovative type of eatery, and what types of properties are best suited for this segment of the hospitality industry.
What is a Food Hall?
A food hall is a space that accommodates multiple restaurants in a market-style setting. Food halls tend to cater to Millennials, who increasingly seek out niche restaurants (as opposed to chains) and prefer locally-sourced food options. In addition to offering menu items, food halls typically also have prepackaged, grocery style items and provide general seating to guests.
Why Food Halls?
The multiple options, lively atmosphere, and convenience of food halls make them the ideal dining environment for many Millennials, who value experiences and gravitate toward community activities. In fact, 55% of Millennials prefer to eat at communal tables when they dine out, and 44% of their food expenditures are from dining. Not only do Millennials tend to eat out more, they also seek out unique foods to experience with friends. Food halls appeal to this demographic because they tend to offer artisanal or gourmet dining options that reflect the local culture and community. Similarly, the design of the physical space for a food hall typically incorporates local architectural trends and aesthetics. Many food halls also accommodate live entertainment, making them popular social hubs.
Food trucks are well suited to this type of dining culture, but their mobile nature means they must have adequate parking space to operate, which is often lacking in highly urbanized areas. Food halls are a hybrid between food trucks and restaurants, offering aspects of each, that can still provide variety and community. Further, food halls deliver a tailored, sensory experience to diners that combines traditional dining and entertainment.
What’s the CRE Impact?
Food halls aren’t a hospitality-only trend. They are also considered an amenity for office and multifamily projects, demonstrating how far this concept has spread and how it is becoming the new standard in dining. In fact, food halls could soon come to be expected in business parks and apartment complexes. Having a food hall near your properties can make them more appealing to tenants, increasing value. Further, retailers in the area typically see increased foot traffic, more sales, and higher property values. But for the time being, food halls are generally freestanding markets within walking distance of retail, office, and residential buildings.
Factors to Consider
There are several factors to consider when determining whether or not to invest in a food hall, as well as when choosing strategies for location and development.
Location is likely the biggest factor in whether or not a food hall will be profitable. How much foot traffic does the location get? How accessible is the property? What are the demographics of those pedestrians? How is the area expected to transform over the next few years? What does the nearby supermarket and restaurant scene look like? These questions may help you assess whether a space or location is suitable to be used as a food hall. It’s also important to consider that food halls often turn into a destination, giving these properties the ability to revitalize the surrounding area and encourage further development.
If you’re looking into developing this type of space, you first must decide if a ground-up build is the best course of action or if an adaptive reuse of an existing space will better suit your project. This choice will largely depend on availability within your market, but because foot traffic is the primary consideration of prospective tenants, utilizing an existing vacant space may be the more viable option in primary markets. Food halls may be the ideal solution for spaces such as abandoned warehouses, factories, or transportation depots. Former movie theaters, churches, and nightclubs are often located in areas with heavy pedestrian traffic and may also be well suited to adaptive reuse as food halls.
Make sure that there are prospective tenants interested in the space and that these vendors have branded themselves well enough to be recognizable or appealing to customers. Food halls depend strongly on the quality and diversity of the food offered and typically showcase local chefs and cuisines. So even a prime location and a well-fitted building won’t spell success unless the vendors operating within the space can deliver what customers are looking for in terms of both food and experience.
Food halls may seem like the latest trend, but statistics indicate that they are here to stay. Food halls also have an extremely low failure rate, particularly when compared to more traditional stand-alone restaurants. And while the food halls that come to mind are often cemented in major cities such as Lisbon, Boston, and London, smaller urban areas are reportedly already catching onto the trend. The suburban potential of these market-style restaurants is yet untapped, and outward expansion is inevitable.
You may also be interested in this article about 2018 Consumer Trends and their CRE Implications