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Pick Restaurants Carefully, Report Advises Landlords

The restaurant business has been growing faster than retail, presenting opportunities and challenges for shopping center landlords. Restaurants may be an attractive tenant, but there are some pros and cons that you may need to be aware of before proceeding.

Photo Courtesy of ICSC.

Restaurant sales grew by 6.3 percent in 2018, making up 17 percent of total retail sales, the largest share of any brick-and-mortar retail category.

In the decade following the recession, restaurant sales grew by 5.6 percent annually, compared with 4.4 percent growth for brick-and-mortar retail.

Broken down by sector, grocery sales rose by an annual 3.2 percent, clothing and accessories by 3.2 percent; health and beauty by 3.5 percent. Department store sales shrank by 2.9 percent per year.

Restaurants are an attractive new class of anchor tenant that draws customers and promotes a social connection. But, as landlords pack more food tenants into their properties, care must be taken that they choose them carefully so that they don’t duplicate one another.

Food delivery sales are growing especially fast - up 13 percent in 2018, and restaurants are having to dedicate special areas to expedite deliveries.

Restaurant operators are increasingly establishing delivery-only “ghost kitchens” that operate independently of their restaurants, and more of these are showing up in retail centers.

Photo Courtesy of ICSC.

Full-service restaurants will still rely on retail space for the dine-in experience, but the growth of start-up brands will accelerate through expansion of ghost kitchens.

The appetite for food halls will also remain strong, but great care must be taken in the design, curation, and merchandising of food halls for them to be successful.

They must have the right demographics to drive strong lunchtime and evening traffic, and they must be expertly designed, curated and merchandised.

2019 ICSC.

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