The food hall sector is seeing explosive growth — but it is not foolproof, panelists noted at a Tuesday RECon session titled The Future of Food Halls.
In 2016 there were roughly 120 food halls across the U.S. By the end of 2020, that will have nearly quadrupled, to 450, according to Cushman & Wakefield.
Food halls, part of the burgeoning shared economy, stand out as the ultimate amenity for mixed-use developers, and in many cases, for shopping malls — which are seeking out higher-end food-and-beverage concepts, panelists concurred. With restaurateurs beset by ever-rising labor and overhead costs and a slim average profit margin of 6.2 percent, food halls offer a less expensive alternative to restaurants, for up-and-coming chefs. While food hall vendors usually pay, on average, 20 to 25 percent of their income on rent or usage fees, versus 6 to 10 percent for conventional restaurants, such costs are typically more than offset by lower operational, labor and common-area costs, according to a Cushman & Wakefield report titled Food Halls 3.0, The Evolution Continues.
The sector is far from saturated, said Phil Colicchio, executive managing director of Colicchio Consulting, a division of Cushman & Wakefield. "About 20 percent of the food hall footprint is in New York State alone, so there is considerable room for growth elsewhere," he said.
Food halls are most likely to thrive if they are part of a mixed-use development, said Will Donaldson, CEO of the New Orleans–based Politan Group, a food hall developer. "It should be a part of a bigger project and be ‘shopable’, fun and engaging, plus have off-the-shelf products and delivery,” he said. The beverage component is also huge in halls and should ideally dovetail with local microbreweries, he said.
But there is no single formula for success, Donaldson notes. "What works in one market may not work in another," he said. A food hall operator should handle all the backroom administrative tasks, however, so that the chefs can concentrate on cooking, Donaldson noted. His company creates a universal accounting platform for them. "Every night we give them their share, and that keeps the chefs liquid and allows them to keep going, and that's good for both the developer and the chef."
Food hall tenants need to make between $500,000 and $600,000 in annual gross revenue to put money in their pockets and pay the bills, said Eldon Scott, president of New York City–based Urbanspace, which creates food halls. Because the food hall business is a creative one, the typical asset manager may not fully understand it, Scott said. "That's why we have to layer in people who understand the people experience."
“The food hall is a disrupter and is impacting real estate sectors, including the retail, restaurant, office, multifamily and student housing sectors”
Some food hall projects that struggle do so because developers "don't understand the market and appear to just put in a dozen [random] concepts," said Colicchio. Other halls can suffer when a single operator puts in a dozen of its own concepts, he said. But from a big-picture view, the two most important factors for a successful food hall are an imaginative design and an efficient operation, he said.
Though developing food halls in large markets may be a safer strategy, Politan's Cultivation Hall, in Jackson, Miss., has been a huge success, largely because it set a new food-and-beverage standard in that city of about 150,000, Donaldson said.
Eldon Scott, president of Urbanspace
Food courts can work at malls, but replacing a mall food court with a food hall is iffy, in part because of the typical atriums in courts and because of shopper expectations, Donaldson said. "You are sometimes better in a box," he said. Among the centers planning new food halls are SkyView Center, in Flushing, N.Y.; and the Inner Rail Food Hall, in Aksarben Village, Omaha, Neb., both of which are slated for a 2020 completion.
No doubt, the food hall is a disrupter and is impacting real estate sectors, including the retail, restaurant, office, multifamily and student housing sectors, Colicchio said. Said Scott: "The food hall is another opportunity for Main Street to get back to place-making."
By Steve McLinden
Contributor, Shopping Centers Today