Developers turn to unique eateries as ammunition in the ‘amenities arms race.’
By David Cohen
In an effort to inoculate their mixed-use office and multifamily projects against the threat of e-commerce competitors, developers are increasingly incorporating food halls into their properties to attract tenants.
“Food halls are the latest and greatest in the amenities arms race,” says Aaron Jodka, research director at Colliers International in Boston. “While most buildings are able to find ways to add bike storage, a gym, conference spaces or game rooms, not everyone can accommodate a food hall. It’s a unique differentiating factor in the marketplace, and we are starting to see that really expand.”
There isn’t a single accepted definition of a food hall, but most agree that it is a collection of local artisan restaurants and other boutique food-oriented retailers under one roof. Some are large and include 30 or more vendors, others are smaller or specialize in only one type of cuisine. Some food halls are more bar-centric and include a variety of drink offerings, others focus more on the dining aspect.
Above all, a food hall can be differentiated from the traditional mall food court by the uniqueness of culinary offerings. A food court typically includes a number of chain restaurants while a food hall characteristically consists of all local or unique artisan concepts.
In 2019, the trend is still going strong, and a number of food halls have sprouted up over the past several years across the nation.
There are currently approximately 180 food halls in existence in the U.S., according to Cushman & Wakefield. The firm predicts that by the end of 2020 that number could reach upwards of 300.
Oftentimes, diners flock to food halls for a vast array of authentic and quality culinary options at a variety of price points. Food halls are also an opportunity for up-and-coming chefs and restaurateurs to build a following in a new market because startup costs are lower than opening a stand-alone concept due to a variety of factors, including common seating areas, smaller square footage and reduced staffing costs. There is also built-in foot traffic.
In urban areas, food halls have become popular with office workers who can get in, grab a quick lunch and get back to the office. Landlords and developers of office and mixed-use space have been quick to respond to the trend by adding food halls to new and existing projects.
“The era of sitting down to a served lunch is behind us,” says Chase Welles, senior broker with SCG Retail in Manhattan. “Today’s workers want super tasty food, and they want it now. Often the lunch hour has become a shorter lunch jaunt. A conveniently located, well-curated food hall can cater to the needs of a group popping out for a quick bite.”
For dinner crowds, the food hall is an experience meant to last a bit longer. The most successful food hall projects overwhelm the senses with appealing visuals, inviting spaces and enticing aromas. Vendors are often trendy and upscale. Culinary options are almost always focused on authenticity and freshness.
According to Cushman & Wakefield, 61 percent of adults say they would prefer to spend money on experiences, including eating out at restaurants, over purchasing an item from a store.
A successful food hall, according to Welles, is located in a high-traffic area and has plentiful seating. A curation of the mix of cuisines is also critical. “You need to have a good cross-section of options, from fresh and healthy to the exotic, from Korean to Mediterranean,” he says.
In order to analyze financial success, a food hall should be judged by the dollars per square foot it generates relative to the rest of the development as well as by the overall impact it has on the greater project, explains Welles. A quality food hall will strengthen the landlord’s ability to lease office and other retail space as well as impact the quality of those leases in terms of tenant creditworthiness and the amount of rent tenants are willing to pay.
“The financial success is still case by case based on the individual food hall operation,” adds David LaPierre, vice chairman at CBRE in New York City. “If they’re successful, they bring traffic to a project. And bringing traffic hopefully leads to more sales, which in turn can translate to better returns. Developers of food halls have learned that things need to be adaptable, authentic and of the highest quality to compete for the customer’s dollar. When it connects right, a food hall can transform a project.”
As an example of the tremendous value that a successful food hall can create, Google recently purchased Chelsea Market in Manhattan for $2.4 billion. Opened in 1997, the nearly 1.2 million-square-foot development was one of the first modern food halls and now features office and retail space in addition to the ground-floor food hall.
Overbuilt in Manhattan?
Amid the intensifying demand for food hall offerings, there is also trepidation that the concept is being overbuilt in some markets.
Some of the concern is in New York City, where there are now more than 25 active permanent food halls and an additional 10 under construction or in development, according to Cushman & Wakefield.
But the firm notes that not a single permanent food hall project has failed in New York City to date. In fact, only four food hall projects throughout the United States have closed in the past two years, and one of those was a temporary project. Of the three that did fail, two were in San Francisco and one was in Portland, Oregon.
Notable projects in New York City that will feature a food hall include Brookfield’s highly anticipated Manhattan West mega project, as well as the Essex Crossing development on the Lower East Side. Essex Crossing, a 2 million-square-foot project being developed by Delancey Street Associates, will feature the Essex Street Market and Market Line. When completed, the 150,000-square-foot market and food hall will be the largest market in the city.
Outside Manhattan in Queens, a 1.2 million-square-foot mixed-use development is nearing completion that will include a 25,000-square-foot food hall. Named Tangram, after the Chinese puzzle, the project is on track to be completed by 2020.
Japan Village, a 20,000-square-foot Japanese food and drink marketplace, celebrated its grand opening in November at the 6 million-square-foot Industry City mixed-use complex in Brooklyn.
The food hall, which was curated by owners Tony and Takuya Yoshida, features a specialty Japanese grocer, 11 food stalls and a traditional Japanese pub. It is the only all-Japanese food hall in New York City.
“Having all of these different elements of Japanese cuisine come together under one roof is a truly compelling offering,” says Jim Somoza, director of development for Industry City. “Typically, there will be one place that specializes in ramen, another in tempura, and another still that specializes in soba and udon. At Japan Village, you can find all of that and much more in one place.”
Industry City consists of 16 buildings spread across 35 acres on the waterfront of Sunset Park, Brooklyn. The complex is currently home to around 7,500 workers and is projected to grow to more than 20,000 in the next several years.
The ownership group, which includes Belvedere Capital, Jamestown and Angelo Gordon & Co., has invested more than $250 million in infrastructure improvements to the property, including the addition of courtyards, experience-driven dining and retail as well as event programming.
“Having a food hall at Industry City generates traffic for the other retail tenants and helps build community,” says Welles of SCG Retail, which represents Industry City. “It keeps the area active and vibrant, generating the type of environment many companies seek to keep their employees engaged, stimulated and creative.”
Japan Village was designed to make visitors feel as though they have stepped foot inside a traditional Japanese village square.
The food hall will be divided into four sections: Japanese grocery store Sunrise Market; food stalls with a variety of authentic Japanese vendors; Wakuwaku, a traditional Japanese restaurant and cocktail bar; and Kuraichi, a Japanese liquor store.
“Our goal is to share everything we love about Japan with our local community in a fun and authentic way,” says Tony Yoshida of Japan Village. “Working with Industry City allows us to provide a space where anyone can immerse themselves in Japanese culture through traditional foods, interactive seminars, and family-friendly events.”
Philly’s Foodie Connection
Philadelphia is home to one of the nation’s oldest food halls, the Reading Terminal Market. Originally opened in 1893, the open-air market has gone through various incarnations over the years. Today the location serves as a popular culinary destination for tourists and locals alike.
Offerings at the Reading Terminal Market include traditional Philly-influenced foods like cheesesteaks, roast pork sandwiches and Amish-style soft pretzels as well as more varied selections like shawarma, pad thai, po’boys, and chicken tikka masala.
“The Reading Terminal Market was the original food hall,” says Michael Barmash, senior managing director at Colliers International in Philadelphia. “It’s one of the top tourist destinations in the city. When visitors come to Philadelphia they want to go there. It has been upgraded and run very successfully over the last 20 years.”
But the City of Brotherly Love has much more to offer than just cheesesteaks and soft pretzels. In recent years, Philadelphia’s burgeoning foodie scene has blossomed.
In 1990, only one out of every 26 people in Philadelphia worked at a restaurant or bar. Today that number is 1 in 13, according to research from CBRE.
“This boom has been going on in Philadelphia for years now,” says Ian Anderson, director of research at CBRE in Philadelphia. “The food and beverage industry has been growing and growing. It’s an indication of a long-term change in people’s eating habits.”
A short stroll away from the Reading Terminal Market, another historic building was recently transformed into a food hall by Washington, D.C.-based developer MRP Realty. Completed in 1895, the 123-year-old Bourse building was the first commodities exchange in the United States as well as one of the first steel-framed buildings ever constructed.
In November, the Bourse Food Hall officially opened with 30 artisanal food and retail vendors. Tenants at the market include Hawaiian-inspired Abunai Poke, Indian street food concept Chaat and Chai, breakfast food purveyor Grubhouse, Chinese fare Pinch Dumplings, and Marino Brother’s Cheesesteaks.
“The thing about food halls is that there has been a shift away from some of the branded, commoditized food offerings,” says Anderson. “It’s beyond people eating healthier. It’s people venturing out to more interesting, innovative and local cuisines as well. You want local flavor, something authentic and something with a variety of foods. That’s what’s driven the success of places like Chelsea Market in Manhattan, and I think that’s what is going to drive the success of the Bourse building too.”
For a taste of local flavor, a number of Philadelphia foodie institutions have set up stalls in the revitalized space, including gourmet grilled cheese outfit Mighty Melt, ice cream shop Scoop DeVille and sticky bun baker Barry’s Buns.
MRP Realty’s $40 million renovation of the Bourse building also includes nine floors of office space above the food hall.
“The group that bought the Bourse had to do something to put it back on the map,” says Barmash. “It’s a key location right in the historical district and now that it’s open they are going to get pretty wide recognition. It’s a home run frankly.”
Fenway’s Foodie Paradise
Boston’s first successful large-scale food hall project, Eataly Boston, which opened in 2016 in the city’s Back Bay neighborhood, has led to two more food hall projects set to open this year.
The first, High Street Place in Boston’s financial district, will span more than 18,000 square feet with room for more than 20 food stalls. The project will unite two office buildings at 160 Federal Street and 100 High Street, which are both owned by real estate private equity firm Rockpoint Group.
The second, Time Out Market in Boston’s Fenway neighborhood, will feature 16 curated food offerings as well as two bars. The 21,500-square-foot food hall will be housed in the former Landmark Center at 401 Park Drive, an Art Deco designed structure that was built in 1929 as a Sears, Roebuck and Co. warehouse.
The addition of Time Out Market is only part of Boston-based developer Samuels & Associates strategy to expand and renovate 401 Park Drive.
Besides the food hall, the redevelopment project will include more than two acres of publicly accessible open space, including a one-acre open space and a new 14-story, 500,000-square-foot office and lab building with 17,000 square feet of ground-floor retail. The building’s existing 978,000-square-foot office and retail component will also be renovated.
“Boston is new to the food hall scene,” says Peter Sougarades, principal at Samuels & Associates. “I think that Time Out is slightly different in that it is a unique brand. It’s really about curating this high level of food service, food quality and not creating a cookie-cutter experience.”
Time Out is a media group that provides entertainment, food and drink recommendations to an international audience. The company currently operates in 108 cities across the world. At each Time Out Market, food editors sample local restaurant offerings and invite restaurant concepts to be part of the market. This results in a uniquely curated dining and entertainment concept.
Time Out Market Boston, which replaces a former Best Buy location at 401 Park Drive, will be the fourth such food hall project Time Out has launched. Time Out Market Lisbon opened in Portugal in 2014 and locations in Miami and New York are both in development. In 2017, more than 3.6 million people visited Time Out Market Lisbon.
Samuels & Associates is particularly active in the Fenway neighborhood with a number of projects under development or recently completed. Some of its notable projects include Pierce Boston, a mixed-use tower built to house 349 residential units and 20,000 square feet of retail space; and the Van Ness, a mixed-use complex that features 172 residential units, office space and more than 200,000 square feet of retail space.
“Samuels has done a phenomenal job bringing the Fenway neighborhood up as a destination for office, retail and residential where historically it’s where you go to see a baseball game,” says Jodka of Colliers. “Adding the food hall to Landmark Center will continue to differentiate it in the neighborhood.”
“The addition of Time Out Market is really going to be a nice transition in the next phase of Fenway’s foodie paradise,” adds Sougarades. “There’s been so much positive change in the neighborhood recently, and Time Out is only going to add to that and usher Fenway into this new phase in terms of what kind of food and experiences that Fenway has to offer.”
— This article originally appeared in the February 2019 issue of Shopping Center Business magazine.