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The D.C. Restaurant ‘Shake-Up’ Sees National Brands Move In, Local Restaurants Move Out

The pandemic has ripped through the D.C. restaurant industry over the past two years, driving historic retail vacancy rates in parts of the District as small and large businesses alike have been forced to close up shop.

The large supply of second-generation restaurant space in the market, now that more customers feel comfortable dining out, has served as a siren song for growing restaurant groups eager to gain a foothold in D.C.’s dining scene.

Tatte Bakery at 1200 New Hampshire Ave. NW

“There’s absolutely attention on D.C. from those national brands, more so than ever before,” said Kelly Silverman, senior vice president at CBRE.

Those brands are finding willing partners in landlords who lost their tenants to the pandemic. These property owners, dealing with reduced rental income for two years, are eager to find tenants that won’t go under if pandemic disruptions or another force majeure appears.

“I think security is at an all-time high in landlords’ eyes,” Silverman said.

Across the market, landlords are taking stock of their options for vacant space. The office-heavy CBD is sitting at 21.1% retail vacancy, according to data provided by Dochter & Alexander, while more residential areas have fared better, like the 14th Street Corridor, which is at 7.5% vacancy, roughly in line with its pre-pandemic average.

In those markets where restaurant closures pushed up vacancies, national brands are eager and willing to take advantage of cheap, second-generation restaurant space and gain a foothold in the city. Silverman pointed to Georgetown, a submarket that has a 16.9% vacancy rate, according to Dochter & Alexander, as an area where landlords are welcoming national brands into their space. 

That may soon include brands like Van Leeuwen, a national ice cream chain based in New York City, said Laura Bellantoni, senior retail adviser at Dochter & Alexander. Bellantoni said Dochter & Alexander is working with the brand, which operates dozens of locations around the country, to find a space in the D.C. market with a focus on Georgetown and Alexandria.

Bellantoni said the out-of-market groups entering the D.C. area today may not be the cookie-cutter national chains like Shake Shack, Krispy Kreme or Potbelly. Instead, more regional, trendy brands are looking to expand, like Van Leeuwen, Tatte Bakery or Chicago-based Foxtrot, the last of which just signed deals for three new D.C.-area locations, including in Farragut Square.

“I think the closures that we’ve seen have certainly opened the playing field for new, out-of-market groups to come to D.C.,” Bellantoni said.

National brands aren’t just expanding into vacant retail spaces in D.C. During its earnings call Thursday, Darden Restaurants CEO Gene Lee said the restaurant conglomerate was looking to snap up vacant restaurant space nationwide for its brands — which include Olive Garden, Yard House and Cheddar’s Scratch Kitchen — while the space was cheap.

Moon Rabbit, the Vietnamese-inspired restaurant from chef Kevin Tien, at Hoffman-Madison's The Wharf

The increased availability for restaurant space in parts of D.C. hasn’t made it easier for small, local businesses to expand. Chef Kevin Tien, who operates The Wharf’s Moon Rabbit, Petworth’s Magpie and the Tiger, and founded local hot chicken chain Hot Lola’s, said it has been tough to find and build out vacant restaurant space in the city.

“We’re not all like Starbucks,” Tien said. “A lot of us are just trying to figure it out with the businesses that we have.”

Tien said at Magpie and the Tiger, the startup costs ballooned from an estimated $50K to $200K. He said national restaurant groups with access to capital are better able to withstand those costs and can wield better credit when negotiating for space.

But Tien hasn’t slowed down. He said despite the shoestring financials that come with a small, local restaurant group, he is still expanding, chasing customers and available space for a second Hot Lola’s in Rosslyn.

Tien, who gained acclaim for running the kitchen of Himitsu in Petworth until 2019, is far from alone among local chefs who have seen their customers come into the CBD less often. In a city like D.C. that prides itself on its growing constellation of Michelin stars, chefs accustomed to serving discerning diners are following them to more residential areas.

“If you're used to only being in D.C., maybe you venture up towards Chevy Chase or Bethesda. If you're used to being in Bethesda, maybe you're starting to think about, ‘Does something up the 270 corridor make sense for you?’” Silverman said. “Everything's been shaken up a little bit.”

Marrying The Right Tenant To A Space

The D.C. region’s demographics, dining scene and geography have combined to make it an attractive market for smaller chains looking to expand from their hometowns, Silverman said. 

“I feel fortunate, frankly, to see so many new brands coming in that want to plant their flag within D.C. because I think it does really stand out among the national landscape,” Silverman said. “People take their second step a lot of the time in D.C.”

Aerial rendering of Roadside's City Ridge development

Boston-based café concept Tatte Bakery, which has already announced or opened six locations in the area, is bringing its newest location to a 3K SF space in Roadside Development's City Ridge, the Northwest D.C. redevelopment at the site of the former Fannie Mae headquarters. The retail-heavy development is 97% leased, Roadside partner Jeff Edelstein told Bisnow, to businesses like Wegmans, Equinox and local seafood chain King Street Oyster Bar. 

“We really like to focus on the quality of our retail partners,” Edelstein said. “Financials weigh into our decision, but for us, it’s not the ultimate decision. … The big, creditworthy companies can experience or catch a cold in another market and that will impact what they do here, whereas your local operators are invested here.”

Though the pandemic made the advantage of strong credit clear, landlords like Roadside are thinking about their restaurant tenants not just as moneymakers but as part of the overall amenity base for a mixed-use development. As D.C.’s office workers slowly but surely return to their desks, downtown landlords are looking for the right tenants that can further entice those workers — and their next office lease, Miller Walker Retail Real Estate principal Bill Miller said.

“I think that by and large, where that line is for developers is different from one to the other,” Miller said. “Developers are definitely going, ‘You know what, I'm making a 10-year deal here. In two years, am I going to be happy I did this?'”

Miller said there are landlords, particularly in the high-vacancy downtown markets, who are willing to wait for the right retail tenant. Others simply won’t be able to lease to anybody.

"I think there is going to be a flight to quality, and the rents are moderating,” Miller said. “Some of the retail space that’s in downtown D.C. that’s not great quality just might need to be put out of its misery.”

Where Local Is Going Next

For those local restaurateurs that have remained in the area, residential neighborhoods may present hidden opportunities.

Bellantoni said that local restaurant groups are shifting more toward the "fringes" of the market, including neighborhoods that have seen more foot traffic, thanks to work-from-home trends. 

"Generally speaking, [local groups] have a little bit better vision and insight into the nuances of the residential submarkets that someone from out of town might not see or might have to sell to investors," Bellantoni said.

Rendering for Chevy Chase Lake, a new mixed-use development by Chevy Chase Land Co. and Bozzuto

Colin McClimans and Danilo Simic, founders of the Logan Circle restaurant Nina May, are following that trend. 

McClimans, a Chevy Chase native, said after opening his restaurant in 2019 he heard from customers visiting regularly from Chevy Chase, Bethesda and elsewhere that they wished they had a restaurant like his closer to home.

"We felt like Chevy Chase was slightly underserved," McClimans said. "There aren’t a lot of what you would call critically acclaimed restaurants. Tourists don’t really come to that neighborhood."

On March 21, Chevy Chase Land Co. and Bozzuto announced the chef/owners would be joining five other tenants, including Baltimore-based ice cream shop The Charmery and New Jersey-based chain Playa Bowls, and building a 5K SF Chevy Chase Lake mixed-use development.

McClimans believes local restaurateurs who proved their business model during the pandemic have an edge that allows them to be successful in more finicky residential markets. 

"Young restaurateurs like ourselves … have really positioned themselves well," McClimans said. "There are a lot of options for people to really open up restaurants if they want to."

Competition remains strong. Brokers who spoke with Bisnow said the out-of-town brands coming to the D.C. region today are of a higher caliber than the previous wave of fast-casual chains. They point to Starr Restaurant Group, behind Le Diplomate and St. Anselm, or Mexicue, which is planning to open its second location in the area in Bethesda soon, as signs of where the market is going.

“History is repeating itself,” Miller said. “This time, we’re really getting the premium stuff.”

But for their part, local restaurateurs say they will continue to find opportunities and coexist alongside any newcomers.

“You can save all the big corporations for downtown, for all the office workers and the power lunches and whatnot,” Tien said. “Restaurants are more successful when you’re in a great community.”

CORRECTION, MARCH 29, 5:30 P.M. ET: A previous version of this article misstated the broker for Van Leeuwen. The company is represented by Jason Kastner at Dochter & Alexander. The story has been updated.