Real Estate

The Changes in Retail are Opening up Prime Locations for Restaurants

Most of us have passed a shopping mall or two that are either closed-down ghost towns or half parking lot-full shadows of their former glory days. It was 2002 when stores started closing their doors. By 2022, 1 out of every 4 malls in the U.S. are expected to close—that’s 300 out of the 1,100 that are currently in existence.

One of the surprising elements of the mall-failure story that many did not foresee coming was the closure of anchor stores—the big retail outlets that use to be the calling card for malls. Sears, JCPenney and Macy’s have closed hundreds of stores. Macy’s alone announced in August of 2016 that it would be shutting down close to 100 stores, or about 15 percent of their operations.

So just what happens when anchor stores leave malls? Smaller stores that relied on the foot traffic that the bigger anchors brought in now find themselves with decreased profits. In turn, they become either one of the growing number of store closures or they find a way to negotiate cheaper rent.

Teavana, Starbucks foray into the retail world of tea, had announced the closure of all 379 of their retail stores. Then, in December of 2017, Simon Property Group sued Starbucks in order to keep Teavana in operation, claiming that their closure would trigger additional store shut-downs in an increasingly challenging market. A judge agreed and ordered Starbucks to keep their tea chain operating. They have since reached an agreement and Teavana stores are beginning the closure process.

It probably wasn’t a hard argument to make. Multiple smaller chains are closing in the wake of retail meltdown. These include over 800 Payless ShoeSources, 200 Gap and Banana Republic locations, and 269 Ascena Retail Group closures that include Ann Taylor, Loft, Lane Bryant and others.

And where are restaurants in this saga? They are, in many cases, becoming the new anchor tenants. When you hear this, your mind probably turns to The Cheesecake Factory or Applebee’s—restaurants that have staked their claim and their reputation on malls. But times are changing.

Many a mall is looking for the next chef-driven farm-fresh venue that caters to the Millennial crowd. Others are searching out restaurants with tapa-friendly menus and in-house entertainment. Malls are now becoming “experiences” and mixed-use redevelopments with hotels, apartments, office space, entertainment…and maybe even some stores.

The Figures

Just 10 years ago, food tenants took up only 10 to 15 percent of a malls available rental space. Today, those figures have risen to anywhere from 20 to 40 percent. The Daily Herald reported on Oakbrook Center’s major renovation in Chicago’s western suburbs almost 5 years ago. At the time, the lower level of Neiman Marcus was converted into two restaurants: Perry’s Steakhouse and Old Town Pour House. The District—a 14,000-square-foot dining destination—opened its doors in Oakbrook Center a little over one year ago.

With the increasing demand in anchor tenants, one would think restaurants might be able to cut some good deals and not have to pay the previous high-rent that these locations required. Alas, such is not the case. While neighborhood “all-in-one” entertainment, shopping and dining centers may be courting restaurants, there are enough wanting the prime spots that rental rates have still been on the rise.

John Gordon, from the Pacific Management Consulting Group in San Diego, was quoted in Nation’s Restaurant News, “Restaurateurs are getting more used to 7 or 8 percent rent (of sales) and trying to make it work.” Ouch.

With mall competition remaining surprisingly strong, it can be a tough decision for restaurants. Beverly Center in Los Angeles reportedly includes 11 chef-driven restaurant concepts. One of these is an offshoot of Saison in San Francisco—one of the most expensive restaurants in the country.

Before jumping on the mall bandwagon, it’s important to take a good look at the market and the figures. This includes how many restaurants are proposed for the mall and the negotiation of an exclusivity clause or a tenancy clause for a certain number of tenants. Before signing on the dotted line, check out the demographics in order to make sure that the surrounding area will support your venue.


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