Food & Beverage Tomorrow: Seven considerations for downtown restaurants adjusting to hybrid work

Hybrid work is affecting not only downtown office buildings but also nearby food establishments. These restaurants, many of which were able to stay afloat during the pandemic thanks to federal programs like the Paycheck Protection Program, are adjusting to a new reality of fewer daytime commuters and business travelers.

What’s next for restaurants in downtown city centers? Operators must consider a host of new factors well beyond traditional site selection criteria, as hybrid work makes it difficult to predict when and how many potential diners are in the area on a given day. While decision-makers can use mobile data to determine foot traffic patterns, the data can’t assess the impacts of evolving hybrid work models on future traffic trends.

The state of the return to the office

As of March 2023, average office utilization—as measured by entries into office buildings by Kastle Systems—is hovering near 50% in the 10 largest U.S. office markets.

Hybrid work is constantly evolving, however, with a growing number of companies requiring in-office attendance two to three days per week (and, in some cases four days per week). As a result, office occupancy is improving midweek but remains muted on Mondays and especially Fridays.

Downtown and suburban retail performance diverge

Throughout the 2010s, the national urban retail availability rate was lower than the suburban retail rate. However, since the pandemic, the suburbs have outperformed downtowns, as people moved to—and worked from homes in—the suburbs during the pandemic and fewer workers commuted to downtown offices.

Figure 1: Suburban vs. urban retail availability (%)

Source: CBRE Research, Q1 2023.

CBRE’s analysis of retail foot traffic data in Chicago illustrates the impact. As of January 2023, foot traffic remained below pre-pandemic levels in the CBD, but above pre-pandemic levels in Arlington Heights, an adjacent suburb.

Figure 2: Chicago CBD vs. Arlington Heights foot traffic pattern changes, 2019-2023

Source: CBRE Research, Q1 2023.
Note: Traffic indexed to January 2019

Restaurants have largely followed this trend. A JPMorgan Chase & Co. Institute analysis of transaction data patterns found more restaurants opening in the inner suburbs from 2019 to 2021 than in downtowns, largely because those working from home dined out or prepared food where they live.

The road ahead for restaurants: Seven planning considerations

Restaurant executives assessing the future of locations catering to office workers are contending with these seven factors:

1. Hybrid work evolution: With more companies seeking to bring workers back to the office, restaurateurs are paying close attention to the hybrid work strategies of major nearby employers. To commit to a new site, however, they need to see a clear indication of future foot traffic patterns. If a nearby company mandates four days of office attendance, for instance, they can rely on a relatively steady customer base on most weekdays. If they’re considering a two- or three-day work week, however, demand will likely be uneven, making restaurant operations—including staffing and stocking perishable foods—more difficult.
2. Shifting offices and workforces: Many companies are shifting their office locations in an effort to cut down on commute times, which a CBRE survey of 20,000 global consumers found as the second-most important factor for workers when considering a new job. Workforce demographics matter as well, as higher-income workers are more likely to eat out.
3. The economics of office landlords: Office investors, especially those with Class B and C space, are grappling with higher vacancies, declining rents and a challenging capital markets environment for refinancing or selling a building. Restaurants located in office buildings need to closely scrutinize their landlord’s financials, especially new establishments relying on tenant improvement allowances and other incentives to open their doors.
4. Local market dynamics: The pandemic spurred major demographic shifts, with many people migrating away from densely populated gateway cities to suburban areas and Sun Belt markets. Office markets are performing similarly, resulting in new opportunities for restaurants in growing office markets and the suburbs of many major coastal cities. Public safety is also an issue, with some restaurants—but by no means all—exiting or avoiding jurisdictions experiencing higher crime rates.
5. Office-to-residential conversion: Owners of underperforming office properties are exploring the possibility of converting them to apartment buildings. While adaptive reuse takes time—and not all office buildings are candidates for conversion as the typical floorplates are larger than 20,000 sq. ft.—it helps create live-work-shop neighborhoods less prone to the future fluctuations of daytime weekday commuters.
6. Tight suburban markets: Overall, retail fundamentals in the suburbs are tight, with many restaurants struggling to find suitable locations for expansion and others being priced out amid record-high rents. As a result, downtown locations may see more interest from restaurants seeking to enter or expand into new markets.
7. Smarter staffing: With the restaurant industry still facing a shortage of workers and higher food costs, establishments catering to office workers may seek to optimize operations by closing during days and times when office attendance is low. This strategy was often used on weekends and Mondays prior to the pandemic, but now might extend to Fridays or weekday evenings, when fewer people are likely to be around in the near term.

Implications for restaurants in office districts vary

While the suburbs have generally been more attractive locations for food establishments than downtowns since COVID-19, local market dynamics matter. Restaurants in downtowns with residential neighborhoods, cultural amenities and tourist attractions, like New York, Philadelphia and Chicago, have been able to withstand the drop-off in office attendance better than office-dense downtowns like Washington, D.C., where many federal workers—who account for a third of office workers in the area—continue to work from home. As such, operators will need to take a hyperlocal approach in planning future downtown locations.

Patience is paramount as well. Site selection and lease negotiations can take months to complete in the current environment, and building out spaces takes longer—often nine months today versus six months pre-pandemic. As such, restaurant operators are planning locations today that may not open until 2024 or 2025 in an environment where predicting future office occupancy trends is very challenging.