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‘Feeding Frenzy’ For Restaurant, Retail Space Leaves Brokers Scrambling For New Locations

When Foxtrot, the chain of high-end neighborhood markets, shuttered abruptly in April, Retail Connection Managing Director Steve Zimmerman said he was fielding calls nearly instantaneously, with numerous brands clamoring for space. 

“There was a line out the door to go get them,” he said. 

The dozens of urban locations thought to be opening up had such appeal because of a shortage of available retail space that has put pressure on retail real estate brokers like never before to beat the competition when an opening arises.

Even Foxtrot's implosion didn't help as much as some hoped — the chain plans to return to some spaces this summer.

The Foxtrot location at 1275 New Jersey Ave. SE in Washington, D.C.

The retail and restaurant worlds have seen substantial growth in demand after the whiplash of pandemic shutdowns, resurgent dining and entertainment demand, and inflationary shock rapidly shifted the market in just a few years. 

Roughly 155M SF of retail space has been removed from the market in the last five years, according to new JLL data, and 75% of new inventory today enters the market preleased.

Between shrinking new construction, sky-high demand and even the demolition of older spaces, the supply crunch is eating into leasing activity — and broker compensation. Today, it takes just 8.5 months to fill open shopping center space, the quickest turnaround in roughly two decades, according to CoStar data.

Brokers nationwide have been getting frustrated as brands and concepts approach them for business and new spaces, as there simply aren’t enough options available, JLL Senior Vice President of Food and Beverage Advisory Emily Durham said. Clients may be knocking down their doors looking for new locations, but closing deals with shrinking inventory is getting harder.  

“The feeding frenzy, it is real,” Durham said. “If you’re a lucky broker, you have good relationships and you find out quietly before something goes on sale.”

Brokers who specialize in these types of properties find themselves constantly in search of highly sought-after real estate for new locations that almost instantly gets turned over, requiring them to broaden their searches and keep closer tabs on available and even distressed properties. Restaurants, fitness and entertainment concepts in particular have exploded.  

Despite suffering massive closures in the depths of the pandemic and the continued struggles of older chains such as Red Lobster and Boston Market, restaurants still account for nearly 1 in 5 retail leases, the highest percentage since CoStar began tracking those stats in 2007. Schumacher Group President and broker Peter Kruskamp, who works primarily in the Atlanta area, has been working with Buffalo Wild Wings to buy and turn over locations of O’Charley’s, a Nashville-based chain that has been closing dozens of outposts

“Now it seems that everybody in the industry wants to do restaurants, as they want lucrative deals,” Kruskamp said. “If you’re a restaurant or retail broker and you’re having a hard time getting clients right now, perhaps you should look to be doing something else.”

Several factors have created a supply crunch for retail and restaurant space. The retail development slowdown following the so-called retail apocalypse of 2017, then a near-halt in 2021 and 2022, means the supply of new locations has been curtailed. A lack of new office development also means less new ground-floor space in urban centers. 

“You have shopping centers that are 100% occupied and have to wait for lease expirations,” The Retail Connection Executive Vice President Jill Tiernan said.

And changing consumer habits and rising construction costs have meant a preference for smaller-format, drive-thru or pickup-first locations, especially for the multiplying number of new coffee chains. Durham said that in the Houston market alone six coffee brands are expanding and rolling out right now.

The fast-casual space, which used to be just a handful of chains like Panera and Chipotle, has taken off, with numerous brands vying for the same small-format stores. Many quick-service and fast-casual locations like Cava seek out slightly smaller footprints, maybe 3K SF, while larger locations get snapped up by concepts that combine entertainment and dining.

Landlords, flush with demand, can cherry-pick tenants based on credit. It is forcing restaurants to be much more convincing with brand books and presentations to sell themselves. These factors all place pressure on converting existing locations or recently closed franchises into the latest location of a new chain. 

“When you factor in new construction costs, it’s cheaper to come in and take over a space, even if it’s a little bigger or smaller than your normal footprint,” Kruskamp said. “That’s the main reason I see such a big fight over this empty space.” 

In this kind of environment, communicating and networking, along with having inside information, is the key to success, said Tiernan, who focuses on Dallas-Fort Worth. Restaurant vacancy rates there hover around 2%, she said.

“We're all fighting for the same space, we're all trying to turn over the same rocks. It's really who gets there first and, nowadays, who is willing to pay the most,” Kruskamp said.


Information, always a key currency in the industry, has become more vital, as prime properties only have brief windows of availability. Clients have become much savvier and more sophisticated, utilizing more demographic data, labor force information and foot traffic data. 

Brokers have more options than ever for data. Kruskamp typically consults Crexi and CoStar, as well as programs like AlphaMap, a newer tenant data tool. But nothing beats getting in his car and touring sites. He often spends 15 to 20 hours a week in his car, looking at ingress and egress, potential competition and nearby stores that provide additional draws for customers.

“There are a lot of brokers now who ‘drive’ up and down streets via Google Maps,” he said. “You may get the general idea of the area, but you’re going to be very surprised when you’re driving a client to the site and all of a sudden realize the Google map wasn’t up to date.”

Signage has always been important as a calling card and lead generator, but social media has changed how that concept works. With chains and companies searching for space nationally, the importance of branding and self-promotion on TikTok, LinkedIn and Instagram has only grown.  

Tiernan said roughly half of the tenants her team has worked with recently first reached out after seeing a post on social media. 

For restaurants, retail and entertainment, density is money, and operators chase locations with larger built-in customer bases. But growth patterns have pushed franchisees and chains to look farther afield, landing on fast-growing suburban sites as opposed to more urban locations.

Kruskamp said that in Metro Atlanta, restaurants are willing to go into smaller submarkets, not just Buckhead and Midtown but also Cartersville and Byron. Expanding growth patterns and the lack of closer-in sites have pushed companies and brokers to widen the search radius.  

Other restaurant chains have focused more on buying instead of leasing, figuring that the cost has gotten so high to lease that it is better to buy and build and have an asset that can be sold later.

Retail Connection Executive Vice President Dennis Leibovitz worked with Lazy Dog Restaurants, a California chain, expanding into Texas. Finding it a location in Garland, Texas, to buy and open was a lot more time-consuming because they had to pass on many locations they loved that weren’t for sale. 

Despite the struggles of other sectors of CRE, there hasn’t been a massive influx of new hires in restaurant and retail brokerage. Most office brokers went to industrial, Kruskamp said. But with demographic data suggesting more demand for restaurants and dining out, the industry seems poised for additional competition and growth.

“Every doctor or professional that either gets laid off or decides to close their practice thinks they can be the next Ray Kroc, figure out how to do it,” Kruskamp said. “There’s always people who have money and a lifelong dream of opening a restaurant. So it keeps us busy.”