Considerations for procuring the right food hall

Courtesy Cushman & Wakefield

Tyler Bray
Director, Cushman & Wakefield

Throughout Denver, over the past couple of years, food halls have been one of the most prevalent emerging trends for retail. Earlier this year, Phil Colicchio, executive managing director, specialty food and beverage, entertainment and hospitality consulting at Cushman & Wakefield, along with Rick Latella, who is also executive managing director and the practice group leader for retail valuation and advisory, released “Retail Reinvented: Food Halls, Millennials & Virtual Reality. Oh my!” We are here to provide our spin on this topic and how it relates to the Denver market along with the trends we are seeing for the upcoming year.

Tanner Johnson
Director, Cushman & Wakefield

Food halls can be exciting, offer variety and provide a unique experience for the customer. In recent years, landlords and developers have shown a real appetite for backfilling vacant retail with food hall concepts. But at what price does it come? Identifying and securing the right food hall concept for a specific site does have its challenges.

Landlords and developers are tasked with a number of decisions: whether they are going to curate the food hall themselves or whether to identify a single operator who will curate the food hall with her own concepts; whether they want their food hall to be an incubator for startup concepts looking for low barrier-to-entry sites or if security and credit are more important, seeking established operators looking to expand their brand; as well as how to structure the bar operation within the food hall, given some of the challenges surrounding Colorado liquor laws. These are just a few of the very important decisions that will determine the direction and potential success of any given food hall.

We have seen both successes and challenges with the different food hall concepts currently operating throughout Denver metro.

Curating a food hall in-house with many operators can create an incredible, profitable and rewarding experience for everyone involved but also it can be very costly from a time and money perspective. Determining the best tenant mix for a site doesn’t happen overnight, and the costs associated with build-out for each operators’ space can get expensive very quickly.

Logistics, management and operations are other vital factors that must be addressed to ensure a food hall operates in harmony. Identifying the correct operator for the bar is another very important factor given the bar is recognized as the most coveted space within a food hall. The bar typically is the centerpiece of the food hall and benefits from some of the highest margins within the space. The bar has relatively limited labor requirements, and operators recognize that the bar has the ability to embody the spirit of the greater food hall. The majority of the food hall concepts currently open and operating throughout Denver metro have a single bar operator. This is due to Colorado’s liquor laws and the liability associated with holding a liquor license within a certain premise.

Courtesy Cushman & Wakefield

Some landlords and developers have recognized that they don’t have the bandwidth or can’t provide the time commitment required to move forward with this type of food hall concept, so they turn to identifying a single operator to curate the entire food hall with his own concepts. This model has proven to be successful when a strong operator is willing to commit to a large block of space, the operator has a proven track record of concepts and the economics of the lease structure work for both sides. While this model takes a lot of obligation off the landlord, it in turn places an enormous amount of responsibility on the operator. This food hall model requires an intense amount of labor to properly operate all concepts within the food hall, and Denver is experiencing labor challenges within the food and beverage industry. Logistics can be another area of stress for a single operator, therefore technology, a strong management team and experience will be essential to ensure the success of the food hall. Under this food hall concept, the bar program would be owned and operated by the curator, a significant benefit based on the explanations provided earlier.

We believe that the market can support additional food hall concepts as long as they are well thought out, located in a heavily populated infill location, have a live/ work/play consumer base mentality and individuals with disposable incomes who thrive on entertainment and social engagement. New food hall concepts recently have been announced throughout the market and we anticipate a few more to come. Ultimately, landlords and developers must look at their business plan on a specific site and clearly identify their goals and objectives so they can decide what food hall concept will be the best fit for them.

Featured in CREJ’s November 2019 Retail Properties Quarterly

Edited by the Colorado Real Estate Journal staff.