Work From Home Changing the Landscape of Consumer Spending and Restaurant Real Estate by Peter Kruskamp
If anything is good for pounding humility into you permanently, it’s the restaurant business.
-Anthony Bourdain
Harold Shumacher founded The Shumacher Group, Inc. ” TSG ” in Atlanta in 1987 after a stint with a couple of Atlanta newspapers as a food critic, and a brief period as a restaurant consultant where he helped operators understand who their customers were, how to engage their audience, and ultimately understand where and why they needed to open their stores in the locations that would give them the opportunity for the most success. Quickly, Harold realized that he was doing quite a bit of work for someone else- the operator’s RE Broker. And, quickly after that, he realized that the broker was making considerably more money brokering the deal than the consultant sharing expertise and knowledge. Believe it or not, there was a time when brokers avoided recruiting restaurant clients as the deals were viewed as too difficult and not worth the money made (see today’s Hookah Bars).
Harold loved restaurants and turned helping clients open them into his niche, and he, Steven Josovitz, and Irving Jacobson have reaped the benefits of their efforts for decades. Each of these legendary Atlanta/Georgia brokers had a one-up on their competition, however, and that was they each KNEW restaurants. They knew the trends, they understood the difficult life of a restaurant operator, and they knew the tiny margins, the tiles on the floors, the grease trap, hoods, vents, walls, staffing issues, back-of-house and front-of-house nuances. They knew restaurants through and through- and Irv and Steve remain Atlanta’s prominent restaurant brokers. Both have passed that knowledge to the rest of our team, and we youngins are enjoying the fruit of their labor and the name they have made for The Shumacher Group, “THE GO-TO Restaurant Brokers” in our market and beyond.
Ok, a shameless plug of my company is over. That is not what this article is about, although I am sure we’ll get back to it. Harold did another amazing thing for our company and that was become a very early member of Retail Brokers Network where he helped to shape the amazing group that we are today, consisting of highly skilled restaurant and retail brokers throughout the United States. RBN is the leading networking group whose members specialize in Retail Real Estate Brokerage. For the last 9 years, RBN members have been attending RFDC, Restaurant Finance and Development Conference, in Las Vegas, held this year November 13-15 at the Bellagio.
“Every year feels like its own era” – Tom Kaiser, Food on Demand.
RFDC gives us the opportunity to meet and create and foster relationships with deal makers, the CEOs and CFOs who are Decision Makers, not just deal negotiators. Cultivating these relationships can and will pay off in dividends for our Retail Brokers Network members. Nearly 20 of us attended this year as representatives of RBN, promoting our nature of Know, Like and Trust, and our ability to help a brand grow nationwide with consistent, top-quality professionals across the country.
Aside from getting to know the Queens and Kings of the industry, RFDC also gives the opportunity to learn from some of the smartest in the industry. I have been on a data kick lately and recently wrote a blog about how we as brokers need to be careful that we fully understand the data- how it was collected, what it truly means- so that we can provide our client with the most accurate analysis of a market that aligns within their target demography and psychography. So, when I saw that Stanford Professor of Economics, Nick Bloom was one of the conference’s opening speakers, I got a little giddy. Professor Bloom is a leading researcher and analyst on Work From Home (WFH) and he and his colleagues have released a plethora of data, articles, graphs, and results of the trends and impacts of WFH for a number of years.
Barrero, Jose Maria, Nicholas Bloom, and Steven J. Davis, 2021.
“Why working from home will stick,” National Bureau of Economic
Research Working Paper 28731.
www.wfhresearch.com
The graph above shows the average number of days a worker in a particular segment stays at home during the week. Our tech workers are the highest and our hospitality and restaurant friends round out the bottom. Restaurants are on the front line and represent a very small portion of the WFH force, but the impact on restaurants is vast. As we all are aware, the pandemic drastically changed the way that people shop and where people work. We all know friends and colleagues who moved from the city and finally bought that mountain home they planned to buy in 15 years. Both online shopping and WFH skyrocketed during the pandemic, and online shopping, while continuing to increase year after year, has leveled off, back to the same trajectory it was on pre-pandemic. The rise in WFH, however, has stabilized at about five times its pre-pandemic value. Larger numbers of our workforce doing so from home is here to stay.
What Does This Mean for Restaurant Real Estate?
In 2018, I brokered a deal for a great client of mine, Vietvana, best in class traditional Vietnamese food that opened their first location near Decatur, GA and they were instantly loved, recommended, and sought out for large parties, buyouts, and catering. Our next target: Midtown, 4,200 sf in the base of a new student housing and office high rise on the edge of the GA Tech campus, that sits adjacent to the brand new, then- still under construction new HQ for NCR. Hard to break into the market, high, but market rents, expensive buildout, built-in audience, this is gonna be a killer location. Boom. Pandemic. Tech closes, NCR and every other office in Midtown closes. Vietvana held on as long as they can but ultimately had to close the space. This “no-brainer” was suddenly a tragic case of Covid 19’s toll on our big cities’ hospitality industry.
According to market reports from Lee and Associates and Colliers, Midtown Atlanta’s office vacancy rate seems to have leveled off at around 19%. Missing from this number, though, is the increasing amount of office space available for sublease. An Atlanta Journal article in July of this year notes that the square footage available for sublease is up 37% over the previous year which includes availability from some of Atlanta’s heavy hitters- COX, Home Depot, Anthem, and IBM. So, while this space is not noted in overall vacancy rates, it is good to note that this space is not being used and represents many more workers who are not in Midtown.
This shift in where people work presents a shift in where people eat. While Vietvana’s Midtown location’s demise may have been exacerbated by the immediacy of the pandemic and stay-at-home orders (among other reactions we likely wouldn’t see again), the high startup costs, and the skyrocketing costs of goods and kinks in the supply chain, we are seeing Midtown lose its luster among many of our clients and other restaurateurs, while the demand in metro markets continues to rise.
Brokers must now understand the changes that have occurred within offices and be prepared to work with clients to understand where their patrons now shop, dine, and seek entertainment. According to the USPS- as noted by change of address- nearly 1 million people have left big city centers in the United States. I see the shifting markets as a positive on the tenant representation side. We will not see Midtown or Buckhead collapse, nor will we see such demise in other big cities, but we will see competition from the outskirts that will help to correct the astronomical rents our clients have endured for years, as well as offer new markets to open and expand their concepts.
Who Are the Winners and Losers of This Shift?
“We cannot direct the wind, but we can adjust the sails.” – Dolly Parton, The University of Georgia’s latest transfer.
As employers work to figure out what it now means to have a large percentage of employees working from home, they are realizing that some sort of hybrid is ideal, not only for employee satisfaction but also for employee retention. Nick Bloom’s study on quit rate saw 35% fewer employees leave a job if the job was set up on a hybrid WFH model. During this same period, there was also a slight increase in productivity compared to those who worked in the office full-time.
As it turns out, our workforce is not spending less money on dining out. The number remains the same as pre-pandemic levels, but we are now seeing the sales of restaurants outside city centers rise overall while those within have dropped. There will continue to be about 15% fewer people in big-city downtowns on weekdays (citation). Just as we have seen the increase in WFH numbers increase, but level off, we should also expect to see the drop in sales in our big cities also begin to level off. Our big winners will be the operators who continue to adapt to their new markets and figure out how to decrease costs and increase sales. Some of our short-term losers will be property owners with large debts who depend on the historically high rents. Those landlords will do the same and figure out how to adapt; if not, the next owner who gets that property at a discount will.
Restaurant brokers, like those at The Shumacher Group in Atlanta and our counterparts at RBN around the country, will certainly win from knowing the impacts of these shifts. I can always use more markets and more inventory for my clients. And understanding these changes and bringing this knowledge to our clients is what sets us apart from other shops. Staying one foot ahead by sharing knowledge, attending conferences like RFDC, and consistently keeping up with the latest trends through our councils and other networking events will ensure that we are leaders of our industry and always providing the latest and greatest to our clients.
Always remember that TSG can help our retail and restaurant clients grow nationwide. Through Retail Brokers Network, we can manage your growth alongside our 60+ offices covering every major market and beyond throughout the United States.
Peter Kruskamp is President and Qualifying Broker at The Shumacher Group. Since taking the helm at TSG in 2019, Peter has relied on the idea of always learning and taking in information. Peter and his team’s knack for understanding the ever-changing landscape of restaurants and real estate has helped TSG remain a leader in restaurant brokerage.
Peter Kruskamp
678-923-3495
www.shumacher.com
