Manhattan Fast-Casual Restaurants Switch Gears as Office Returns Remain Sluggish

When the coronavirus outbreak first took hold in the U.S., New York City bore the brunt of it. The city was quickly deemed the pandemic’s initial epicenter, and countless residents abandoned their apartments and fled to the suburbs for more space and less congestion. At the same time, office buildings across Manhattan shuttered to workers. And as of late May 2021, only 12% of Manhattan office workers had actually returned to in-person work, according to a Partnership for New York City survey.

All of this upheaval wreaked serious havoc on office REITs (real estate investment trusts) with large concentrations of Manhattan properties. And it put the city’s residential landlords in a bind, so much so that many resorted to offering months of free rent in an effort to encourage lease signings.

But it’s not just office buildings and residential properties that got hammered during the pandemic. Many of New York City’s local businesses got hurt as well. And that especially applies to restaurants.

Early on in the outbreak, restaurants were forced to close to in-person guests, limited to takeout and delivery only. When things improved modestly, eateries got the green light to open at reduced capacity.

These days, restaurants can operate at full speed, and many establishments are starting to recover from the blow of the past 18 months. But if there’s one breed of restaurant that’s still continuing to struggle, it’s fast-casual eateries.

Why fast-casual restaurants haven’t recovered

Many of Manhattan’s fast-casual restaurants rely on office building crowds to stay busy and generate revenue. But since offices largely remain shuttered, those restaurants aren’t getting much (or in some cases, any) business. And many have closed as a result.

At the end of 2020, the Center for an Urban Future put out a report that found that a number of well-known fast-casual chains closed New York City locations. Included in that mix were Au Bon Pain, Hale and Hearty Soups, and Potbelly Sandwich Shop. Even Starbucks downsized its footprint to the tune of about 50 locations.

But while many of Manhattan’s fast-casual restaurants became victims of the pandemic, some have managed to survive. And the reason boils down to one strategic decision.

Going to where the customers are

Given that offices in Manhattan’s largest business districts have remained empty for 18 months and counting, some fast-casual restaurants have made the decision to switch locations rather than sit back and wait for more customers to show up. Now, these eateries are setting up shop in residential neighborhoods and areas surrounding colleges, where they’re likely to drum up more consistent business. They’re also pivoting from five-day to seven-day locations, staying open on weekends to accommodate their new clientele.

The move is a smart one, given that many offices are unlikely to see high levels of foot traffic until early 2022 at the earliest. Of course, not every fast-casual restaurant can just move to a new location. While chain restaurants may have corporate resources to fund that sort of pivot, mom-and-pop eateries don’t have the same options.

But still, the fact that some fast-casual eateries are moving to where there’s customer demand is good news for real estate investors. If those restaurants don’t fold, the landlords who rent to them won’t be stuck with vacancies to fill.

At some point, Manhattan’s office occupancy rates should pick up, especially as more companies impose vaccine mandates. But for now, restaurants that are willing and able to move closer to customers may be better positioned to survive the pandemic than those that insist on staying put.

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