CREJ - Retail Properties Quarterly - February 2015
Last year, Denver welcomed approximately 300 new restaurants into the Denver metro area, and about 200, or maybe even more, are expected to open their kitchens in 2015. Needless to say, metro area diners have plenty of cuisines, neighborhoods and price points from which to choose. And before you begin to feel “stuffed,” there are a lot of exciting new culinary ideas, ventures and trends that will keep you coming back for more. One of the more interesting things occurring with small, chef-driven restaurants is the preference toward smaller spaces. These independents are more than happy to locate in a very intimate setting (2,000 to 4,000 square feet) and provide superior service and unique recipes to smaller groups of patrons. In addition to a small space, they are increasingly seeking locations that are tucked-away, and sometimes challenging to find, as long as they’re in an urban setting. For these rebel chefs, being somewhat of a mystery – in an offbeat location – adds to the aura of their image, enhances the customers’ experience and, some might say, makes them more in demand. Perhaps people enjoy a sense of discovery and, for many serious foodies, the more unusual the trek to get a great meal, the more fun. As a result, small restauranteurs are on the hunt for the proverbial “hole-in-the-wall.” Some of their target areas in Denver include old, traditional neighborhoods where small vintage buildings have been renovated (and have been home to the neighborhood tailor, barber or bar for countless years). Another surprising location that is in high demand is in the city’s old, industrial zones (River North is a prime example), where a restaurant might set up shop next to a cement plant or a secluded art gallery. The many Denver neighborhoods that haven’t yet reached their full potential in regard to development (Jefferson Park and Five Points are two examples) also are beginning to get a lot of attention from chefs with a “build it and they will come” approach. The fundamental “rules of retail” have shifted for these culinary entrepreneurs. They do not require locations with the most auto and pedestrian traffic or highest incomes. And if they provide value, quality and are in step with contemporary trends and décor, people will find them. As an added benefit to their willingness to alter the rules of the game, they can obtain more affordable lease rates at the lesser-known commercial addresses that will help them to stay in the game long term. This trend might concern the landlords of larger metro-area projects, but never fear, as many larger, multiunit operators’ restaurants still want demand-only real estate. These restaurants understand that their customer base knows and appreciates their quality, consistency and service level, and will keep coming back for good food and added convenience. It’s for this reason that the franchises want to be located in shopping malls and centers, along busy streets and in areas with great visibility. They often want large footprints (4,500 to 7,000 sf) so they can generate substantial volume and return on their investment. Major, well-funded restaurant groups, particularly from other markets, are willing to pay top dollar for A locations, provided that they include the complete restaurant infrastructure and $100 per sf toward the build-out of the restaurant. These contributions often are in excess for larger restaurant groups. Their brand and reputation are already well known, highly respected and reliable for giving their customers exactly the experience they want. The landlords who can accommodate this formula for success likely will enjoy the value of having a strong restaurantanchor tenant or tenants on their property for a long time. In between the indie chefs and the large sit-down restaurants, there are numerous fast-casual restaurants, which continue to expand throughout the metro area. Customer favorites, such as Smashburger, Qdoba, Panera Bread, Modmarket, Potbelly, Noodles & Co., Einstein Bros., Hop Doddy, Chipotle and Dunkin’ Donuts, are competing for new locations across the Front Range. They also have “prime” site criteria, and generally require 2,400 to 3,000 sf in order to serve their customers. In addition to new locations, this category of restaurants is actively updating the décor and design of their space. They want to appeal to a younger contemporary customer base, in addition to their base demographic, and stand apart from the competition. If you’re building up an appetite, the metro area’s restaurant scene is as active as it has ever been and we are the beneficiaries.