Restaurants in Shopping Centers: The New Normal

There was a time when retail center owners preferred not to have restaurants as tenants. The thinking was that because of odors or people just milling about, they would add problems rather than value. Now, however, restaurants in shopping centers are fast becoming the new normal. In fact, they are taking over as the primary driver of traffic to retail centers because the convenience of online shopping is forcing department stores and other smaller retail stores to close.

The Value of Restaurants

From shopping malls to strip centers, everyone seems to be courting restaurants. Why? Because they lure customers who are looking for experience instead of soft goods—those they can purchase online from the comfort of their living room sofa. However, eateries offer a good meal as well as the opportunity to enjoy time with family and friends. They provide the experience that consumers want when they go out.
The trend toward restaurants as anchors began after the recession in 2008 and continues to grow. In short, restaurants drive traffic for property owners and that’s good for their business as well as nearby retailers. Furthermore, restaurants can help developers and landlords avoid the costs and cash flow problems associated with vacancies.

Catering to Millennials

Restaurants are particularly attractive to Millennials, the population of young Americans born between 1980 and 1996. A report from the Pew Research Center on March 1, 2018, stated that Millennials are expected to overtake Baby Boomers in population by 2019 when their numbers swell to 73 million and Boomers decline to 72 million.

Furthermore, the January 26, 2018 issue of Supermarket News published a report from the USDA’s Economic Research Service, which found that Millennials spend less on groceries and more on food outside the home.

In summary, there is a growing population that favors eating out over cooking at home. This preference is simply part of Millennials’ lifestyle, and it translates into a winning formula for restaurants of all types, but especially fast-casual.

“Millennials want quality food that is inexpensive and served quickly,” says Paul Vernon, an executive vice president in the retail division at Henry S. Miller Brokerage. “They’re not as eager to eat in a chain or national franchise as they are in a restaurant that’s interesting, cool and serves fresh dishes.”

(Of course, chains and franchises have recognized this consumer preference, too. Beginning in May, for example, McDonald’s restaurants in the contiguous U.S. will serve quarter-pound burgers made from fresh beef rather than frozen.)

Share Your Food

Restaurants that attract Millennials are receiving an additional benefit as well: these young, social media savvy patrons often share their meals before they dig in and eat. Their Instagram and Snapchat accounts often feature photographs of the food they are about to enjoy and the people they are with. These social media posts create buzz for restaurants, which in turn drives sales and makes them desirable tenants at many malls and shopping centers. You simply cannot beat the free P.R.

The Dallas Restaurant Scene

Vernon, who has been working the real estate side of the restaurant business for more than 20 years, notes: “Dallas-Fort Worth is a destination for restaurateurs of ever-varying backgrounds and ethnicities. They continually bring new ingredients, flavors and concepts to North Texas, which benefits the retail industry and property owners.”

The trend of restaurants transforming existing and planned retail centers as well as mixed-use projects will not only continue, but will be the future of such projects.  Take a look at master planned projects on the drawing boards at architecture firms across the nation.  For example, Hodges Architecture—a major player in retail and mixed-use design for decades–is tying restaurants to open space as the main entertainment component in these types of projects. Great food and a play area for children are part of the experience consumers want and the modern-day equivalent to the family get together.

The information contained in this article is general in nature and should not be construed as financial, tax or legal advice.  As with any financial or legal matter, consult your tax advisor and legal counsel.