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Why The U.S. Food Hall Market May Be Expanding Too Quickly

One of the fastest-growing trends in retail, the food hall market has expanded exponentially over the last three years. But retail experts say some property owners are trying to force them into spaces where they are unlikely to succeed. 

ELM Restaurant Group's Joe Ritchie, Maija Kreishman of the the Michael Hsu Office of Architecture, and Streetsense's Herb Heiserman speaking at NAREE 2019

The U.S. is expected to have roughly 450 food halls open by the end of 2020, according to a Cushman & Wakefield report released last month, compared to 120 food halls in 2016. 

"I don't think 450 are going to succeed," Streetsense Managing Principal Herb Heiserman said when asked about that report at the National Association of Real Estate Editors conference in Austin. "I think there will be a lot of failures in there, and I think it will be related to the operating model." 

The food halls that will fail, Heiserman said, are those for which the landlord tries to shoehorn the concept into a vacant retail space that doesn't necessarily make sense. 

"It’s being looked at as a filler of empty retail space and that's just not the recipe, that’s not the solution," he said. "Many more things have to come together."

To succeed, Heiserman said food halls need to be located in areas with high foot traffic throughout the day that can make them natural community gathering places. One such example is the Fareground food hall in Austin, which ELM Restaurant Group opened last year. 

The Fareground food hall in Austin

The Fareground food hall sits in the ground floor of the One Eleven office building, located at the Congress Avenue-Second Street intersection in Downtown Austin. The food hall has stalls featuring six independent food vendors, a bar and an outdoor patio.

While Fareground is the first food hall in Austin, ELM Restaurant Group Director of Operations Joe Ritchie said he has no plans to open a second location because he doesn't think he could replicate the recipe that has made it successful so far. 

"It’s in a great spot," Ritchie said. "You can’t replicate the location, and we’ll never replicate the design or the outdoor space that we have, which is fantastic. It’s a real draw."

The food hall serves as a major amenity to the workers in the office building, Ritchie said, giving the property an advantage when competing with other office towers for tenants. In Manhattan, the popular Chelsea Market food hall sits on the ground floor of a building that Google acquired last year for $2.4B, and experts believe the tech company was drawn to the building in part because of the food hall. 

Owners of traditional shopping malls are also looking to boost their foot traffic by remodeling older food courts into food halls by bringing in local, independent vendors and incorporating unique design elements. 

Two Northern Virginia malls in Arlington County's Ballston neighborhood and in Tysons recently introduced new food hall concepts. Heiserman worked on the latter project, in the Tysons Galleria mall, and he said the soft goods retailers around the food hall experienced a boost in sales after it opened. But he said the food hall concept is not easy to perfect and he doesn't think it would work for every property. 

"It’s so much more complex, what’s being done there, than just building six kitchens," Heiserman said. "The landlord and real estate community need to understand that it’s a complex model. Another reason that over 400 of them is an aggressive approach is because the real estate community doesn’t have the complexity to understand them."

Ritchie said he thinks it is possible the U.S. could support 450 food halls, but he said they can't all look the same as the ones that have opened in bustling downtown areas. 

"There’s no way there’s one model that’s going to sustain 450 food halls, but curated to a community, the space can be a real draw," Ritchie said. "The way it’s designed and where it’s put is very important ... I think these large projects shouldn’t pop up on every corner."

Food halls have begun to spring up in suburban communities, and experts say they can achieve success as long as they are designed in a way that fits the community. Maija Kreishman, a partner at the Michael Hsu Office of Architecture, said she is working on a food hall in Overland Park, Kansas, a suburb of Kansas City. 

"There’s a very big component with food halls that work for families," Kreishman said. "The biggest challenge in food halls is the operation, early in the day and then late in the evening beyond kids' bedtimes. How can we make sure this might be the last stop in your evening?"

Ritchie said it is also important for a food hall to stay true to its model of local, independent retailers. While Chick-fil-A has emerged as a highly popular retail chain that can draw people to a property, Ritchie said he would not bring it into Fareground because it is reminiscent of the traditional food court concept he is trying to stay away from. 

"We're a local food hall, and that's what allows us to stay elevated and be different," Ritchie said. "Our chefs wouldn't be interested in that."