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Preparing for Conversions of Retail to Restaurants
Experiential uses can require complex infrastructure.
Heightened office vacancy rates in major U.S. cities in the wake of the COVID-19 pandemic have reduced shopping at nearby retail stores. That has led commercial property owners to explore potential conversions of vacant retail space to restaurants and other experiential venues.
The consequences of hybrid office work for retail in major urban cores are significant. The Downtown San Francisco Partnership recently analyzed 43 square blocks primarily covering San Francisco’s traditional financial district and, as The New York Times reported, “counted about 150,000 square feet of vacant retail. That’s a small part of the area’s 32 million total square feet of real estate. But it’s about a third of all the ground-floor commercial space.”
Experiences as a Draw
In the face of this new reality, Goldman Copeland’s experience shows that commercial property owners are increasingly considering converting vacant retail space into restaurants or other experiential venues. The underlying theory is that while specific products can be purchased online, certain experiences are better in person: a wonderful meal at a restaurant, the chance to socialize with friends at a local coffee shop, the opportunity to exercise at a gym or to reach the top of a climbing wall.
In this context, commercial property owners can be faced with several scenarios. In some cases, a potential tenant proposes a new use for a vacant retail space, and the property owner wants to understand the implications. In other instances, negotiations have already begun with the prospective new tenant, and the owner needs to understand the costs in detail. In another instance, an existing retail space has sat vacant for an extended period, and the owner wants to understand all of the viable options for the space.
Options are often considerable and varied. A space can be retained at its current size or changed into new configurations. Different types of restaurants require different infrastructure. Other experiential venues have their own requirements.
The nature of a restaurant — whether it’s a steakhouse, a sushi restaurant, a coffee shop or a sandwich shop — greatly affects the required infrastructure. Each case presents its own needs for kitchen facilities, electrical power, ventilation, fire safety, sanitation and other concerns. Each has its own requirements for seating space and restrooms. Even among ground-floor locations, the precise setting will impact considerations such as where smoke and odor are evacuated and where outside air is obtained.
Property owners may consider a variety of potential uses for other experiential venues. These can include repurposing a rooftop setting as an event space, creating storefront access to a basement space for a gym or spa, or hosting pop-up museums or exhibitions.
Understanding the Options
Commercial property owners should take a couple of steps to more fully comprehend their options for converting vacant retail space to restaurants or other experiential venues:
Understand the existing conditions for each current retail space, including the following: How much electrical power is available? What is the HVAC capacity? What ventilation is available? How do the facade louvers allow air in and out of the building? How much water pressure exists? What is the extent of the sanitary lines? What fire prevention infrastructure is in place?
Knowing the answers to these questions will enable the property owner to be authoritative if a prospective tenant approaches about a potential new use for the space. It also provides a baseline for considering the cost of adapting the space.
Evaluate the cost implications of various potential configurations of space and possible new uses. Changing the configuration can have significant implications for infrastructure, and the location of the infrastructure can in turn affect the potential for reconfiguration.
Similarly, various new uses, such as different types of restaurants, will substantially affect cost estimates. Will the restaurant need a full commercial kitchen? If so, what type? Will there be cooking with grease or just warming of food? How much seating will be required?
With an infrastructure baseline in hand and potential new uses considered, the most cost-effective options can be discussed.
Who will bear those costs will depend on the nature of the new use and the financial circumstances of the prospective tenant. Understanding them will enable the owner to judge the potential of a new prospect. It will also allow the owner to create a strategy for pursuing the best new options available.
Case Example
In one midtown Manhattan office tower, Goldman Copeland is helping the property owner convert a vacant retail space into a Japanese restaurant. This example, now on the verge of construction, highlights the considerations, challenges and opportunities for such conversions.
The 22-story office tower was built in 1924 and faces onto Broadway. The vacant retail space previously housed a bank branch and measures 4,775 square feet. It has a storefront presence and also opens onto the building’s lobby.
The property owner requested technical advice regarding what would be needed to accommodate a Japanese restaurant because related discussions were unfolding with a restaurateur. Goldman Copeland conducted a study of the logistics required and associated costs.
It determined the property would need a type 1 grease-laden kitchen, which typically requires costly exhaust management. The central logistical challenge is this: If the vacant space does not connect directly with an area where kitchen exhaust can be discharged, then a connection must be built. In this storefront space, there are existing louvers above the outside entrance, but they cannot be used for two reasons. First, they were already needed for air conditioning; second, the owner would not allow the discharge of kitchen exhaust onto Broadway because that could jeopardize the building’s reputation. Therefore, an alternative was needed.
Goldman Copeland found a way to repurpose an abandoned internal shaft that runs the height of the building, thereby enabling exhaust from the rooftop at the back of the building. Connecting the kitchen exhaust to the shaft, however, required running a welded-iron duct, insulated for two-hour fire protection, from the kitchen on the first floor down to the basement and then across the entire basement to the shaft, which leads to the roof.
The cost was affected further by a building code requiring that the duct be accessible for cleaning — through small access doors — every 10 to 15 feet and wherever the duct changes direction. Cleaning requirements for the vertical abandoned shaft are more straightforward: An appropriate cleaning device must simply be able to pass through it.
The cost of constructing the duct alone will run upward of $200,000, and other infrastructure needs are required for the restaurant as well. These include a grease interceptor for the drainage system to keep grease from the sewage system; additional capacity for increased water pressure, hot water and electricity; provision of a new gas service; increased plumbing for drainage and water supply; and added ventilation.
The cost of the duct is about 10 times the cost of any of the other infrastructure needs. Still, the overall investment in infrastructure is significant: $300,000 or more. However, it is an investment that will add long-term value to the property and can be recouped through the leasing of the space.
Opportunities for Renewal
Vacant retail space is both a challenge and an opportunity. The opportunity stems from the requirements of the space and the needs of the community. As the community evolves due to changing work patterns, so can the needs.
Today’s vacant retail space is a sign of loss, but filling that space in novel ways can be evidence of renewed vibrancy. Commercial property owners have a key role to play in making that happen when they are equipped with the foundational knowledge essential to guiding those decisions.
Daniel Colombini and Daniel Galarza are principals at New York City-based consulting engineering firm Goldman Copeland.
