Food halls offer small-scale opportunities for landlords, operators, chefs and diners.
AMID A CHALLENGING retail landscape dominated by news of brick-and-mortar store closings, the food hall has emerged as a promising opportunity for the commercial real estate industry and food entrepreneurs. Although food halls vary greatly in size and focus — ranging from “mega” halls, such as Mario Batali’s Eataly in Boston, Chicago and New York, to much smaller venues in aging strip malls, such as The Block in Annandale, Virginia, a suburb of Washington, D.C. — they all feature a mix of vendors offering high-quality artisanal food in a communal atmosphere.
Garrick Brown, vice president and head of retail research at Cushman & Wakefield, credits food halls’ explosive growth to the rise of “foodie culture” over the past 20 years and to the influence of millennial consumers. Brown explains, “For millennials, the emphasis is on authenticity. Processed foods are out; authentic and locally sourced foods are in.”
The food hall trend has not gone unnoticed by landlords and developers, who are rushing to add food halls to their properties. Brown has seen the food hall market expand dramatically, from 70 projects at the end of 2015 to 170 and counting as of March 2017. Food halls are popping up “any place where there’s a lot of density in a high-rise urban market,” says Brown. He notes that “bite-size” food halls (10,000 square feet or less) account for at least half of the new projects he is tracking.
In the Strip District of Pittsburgh, Tyler Benson and Ben Mantica opened the Smallman Galley food hall and restaurant incubator in 2015, just as the food hall trend was kicking into high gear. Smallman Galley is a 6,000-square foot, 200-seat establishment featuring four aspiring chefs, a carefully curated bar program focused on local ingredients, and a coffee bar. Mantica and Bensons’ inspiration for Smallman Galley came from the bustling food halls they visited in Southeast Asia while serving as officers in the U.S. Navy.
Although many food halls are de facto incubators where chefs can try their concepts in a low-risk environment, Mantica and Benson have developed a proprietary training program at Smallman Galley. Benson explains, “We provide mentorship and business resources to the operators while they are with us so that when they leave they have the opportunity to set up their own brick-and-mortar restaurant, hopefully in Pittsburgh.”
At the same time, Mantica and Benson are actively looking to expand outside of Pittsburgh. Their requirements for new food hall locations are minimal: a ground floor space of at least 8,000 square feet in an urban market setting. Benson emphasizes that being in an urban marketplace is crucial because the food hall business model relies on volume to be successful. As he elaborates, “The communal style of dining at food halls tends to be more attractive to urban professionals and millennials.”
The food hall business model offers landlords, operators and chefs a way to reduce risk when launching a new restaurant. Typically, a landlord leases space to an operator (such as Smallman Galley), which subleases space to a number of vendors. Benson explains that operators shoulder the bulk of the capital investment, “so we end up bearing the risk, but we also mitigate it by spreading it out over different concepts.” He adds that Smallman Galley has a raw, industrial aesthetic — essentially a blank canvas that makes replacing vendors simple. Vendor turnover is actually beneficial, according to Brown: “It keeps your food hall fresh, as a concept, so people keep coming back.”
For food hall vendors (chefs), “Startup costs are radically lower and lease terms a lot more flexible than traditional retail leases. In general, the rent that is passed on is double whatever the operator is paying to the landlord,” according to Brown. However, the vendor is leasing only a fraction of the space needed to open a traditional restaurant. Lease terms for food hall vendors are typically one to two years, much shorter than the five- to 10-year terms landlords command for conventional restaurants. Chefs at food halls are thus able to experiment and gain valuable experience before assuming the expense and commitment of opening their own establishments.
Benson advises landlords looking to open food halls to “be flexible and really think about the best way to improve their space and how their building is being branded.” Brown elaborates, “Creating an atmosphere that goes beyond having just a bunch of plastic chairs rooted into the floor like an old foot court” is crucial. “Your end consumers are that millennial crowd, and sense of place is really important to millennials, but the food concepts need to resonate with them as well.”