Coffee and commercial real estate: how to pair unlikely uses, for the sake of a better bottom line.

As we continue, gradually, to reconcile ourselves with a new paradigm where most retail no longer needs a discrete building for its associated brand to succeed–and the brand might even perceive a structure to be a liability–the commercial real estate community must accept that demand for leasable space will linger well below the grotesque oversupply.  Retail is increasingly a virtual enterprise, not a physical or tactile one. But that’s not all. Even our existing retail entities need less and less space to survive; the successful businesses with adequate foresight have shrunk their footprint, right-sizing themselves to align with retreating demand. One recent example: Stout’s Shoes, the nation’s oldest continuously operating shoe store, eliminated 80% of its showroom to account for changing tastes, surrendering its expensive storefront presence to the restaurants that continue to proliferate on the fashionable Massachusetts Avenue corridor in Indianapolis.  Such a move no doubt ensured Stout’s survival in the Age of Internet.

Elsewhere in the Circle City, we encounter a strategy I expect will become increasingly common: subleases with seemingly unrelated tenants, with the primary purpose of putting excess floor space to more profitable use.  Here’s a coffee shop with a handsome, warm, modestly decorated interior finish.IMG_2184It occupies a freestanding structure (not affiliated with a strip mall) that previously had housed a Greek restaurant for decades.  I’d guess the floor space is around 2,000 square feet–far larger than is typical for a coffee shop. But here’s where the owners got clever.  Let’s pivot to the left.IMG_2185The opening just to the right of the lounge seating predictably leads to restrooms, but that’s not all.commercial real estate in a coffee shop, IndianapolisTo the right side of the hallway are the restrooms and to the left are partitioned offices featuring a realtor and a background screening service.  Not much of a relation to coffee, eh?

From my conversation with a staffer at the coffee shop, these two services are either freelance projects of the coffee shop’s owners themselves or entrepreneurial initiatives of their family members.  It’s nothing deep, but the owners undoubtedly recognized they were working with a bigger space than would be necessary for a coffee shop, and oversized restaurants only convey a tone of emptiness, of vacancy, a lack of vibrancy, and ultimately the unpopularity of the restaurant itself.  Unless they cook their own food, most coffee shops don’t need 2,000 square feet (as I suspect this one occupies), especially if they aren’t in a densely populated urban setting, and this one most certainly isn’t.It’s far more prudent to put that space to an entirely different but marketable use, however unrelated it may be to the primary business.

 

IMG_2189

The realtor’s office and background investigation service both use the space in a manner that manages to be both subtle and prominent: they’re not the first thing a customer notices, but there’s no escaping them if he or she uses the restrooms.  Unless one of the secondary uses ventures into the territory of potential visual/auditory/olfactory/tactile nuisances, nothing that happens here is likely to raise concerns of zoning and permitting. These are very conventional white-collar office uses.  And if the secondary use did elicit an unpleasant noise or odor, the marketability of the primary business would be the first to suffer, meaning the primary business owner made a bad decision. So it really only boils down to whether the original owner of this property allows multiple uses and subleases, which appears to be the case.  It’s very possible that the coffee shop proprietor bought the old Greek restaurant from the family that had owned it for decades prior–in which case, he/she is the commercial real estate manager and can repurpose the interior for mini-offices and lease the space to whoever he or she wants.

As property owners and commercial real estate brokers grow increasingly aware of the nationwide glut of commercial space, they will have to devise new ways to encourage potential tenants.  It will continue to be a tenants’ market. I expect we will encounter many more situations like the one at this coffee shop…unless, of course, low demand forces commercial real estate brokers to lower their expectations, just as  property managers must lower their leases so much that the coffee shops and boutiques can get away with cavernous, echoey, underutilized interiors–not because it looks good or promotes a vibrant business environment, but because basic commerce becomes so rarified that it’s just the new normal.  Let’s hope it never gets that bad.

Share this post

Share on facebook
Share on twitter
Share on linkedin
Share on pinterest
Share on email

Share this post

Share on facebook
Share on twitter
Share on linkedin
Share on pinterest
Share on email

7 thoughts on “Coffee and commercial real estate: how to pair unlikely uses, for the sake of a better bottom line.

  1. Brian M

    I am old. I like brick and mortar retail. But I am…giving up, frankly.

    I broke a bicycle wheel this week (after a spoke snaps for the third time, it is time for a new wheel. Maybe riding up a mountain on a three-foot wide “road” of decaying asphalt, mud, and rocks was NOT a good idea on a Specialized Tarmac racing bike!!!!) So, I thought I would give the bricks and mortar bicycle shops a try. After visiting the three that were open-none of them had a decent wheel set.

    So, prowheelsdirect.com.

    Will still not buy cycling clothes on line. I need to feel the damn cloth first! 🙂

    Reply
  2. Brian M

    and I visit a brick and mortar hat shop in ritzy (although vacancy bedecked) Rockridge. They actually had a cool hat. We are talking Lee Van Cleef from the Man With No Names Movies. It was a really cool hat. But they only had one in “small”.

    “We can order it for you”. Why bother? On line awaits, guys!

    Reply
    1. AmericanDirt

      Yeah, I just don’t know enough about how retailers manage their inventory to figure this out. It’s gotten harder to find what we need when it comes to specifics (colors, sizes) at the retailers, rather than easier. I suspect that a lot of places are lowering their lease rates by cutting their back-of-the-house storage (much like the Stout’s Shoes example I provided), which means they’re far less likely to keep the full array of sizes as in-house merchandise. Very frustrating, since immediacy is one of the key advantages to bricks-and-mortar, but even that they aren’t getting right, if we have to make two trips to the same store.

      Perhaps these niche combinations of products and services (like the coffee shop/realtor featured here) may offer a moderate two-for-one solution, but what are the odds that more than one person per day is going to need both a pourover medium roast and a real estate consultation in a single trip? Or even more than one person per week? Frankly, the featured businesses here should be the realtor or background check, and a person can enjoy an above-average cup of coffee while they wait.

      Reply
  3. Brian M

    Even restaurants are now dying. Why go out to eat when you can hole up in your apartment and just order from an “ap”?

    A famous pizza shop near UC Berkeley blamed aps and chains for their closure. BUT: It doesn’t help when, frankly, the slabs of greasy pizza you have been slinging for 30 years are mediocre at best and far below the standard of what you can order on line (or in person elsewhere) these days. Or when walking to Fat Slice requires threading a gauntlet of ever more deranged drug addicts and lost souls (not that Telegraph has ever been clean or “safe” (LOL).

    Reply
    1. Chris B

      Let’s veer into restaurants. The site featured in this story was a relatively long tenured Greek restaurant that was a key ingredient in neighborhood revitalization.

      I’m not of Greek descent so I don’t know how the food stacked up against, say, Greektown in Chicago. (A well known Indy blogger said he thought pretty well while we ate there once.) But it was third of three Greek places in Indy and the nearby cosmopolitan world pharma company HQ probably helped sustain it.

      The restaurant didn’t fail. The owners got near retirement age and didn’t have family to take over. They became absentee owners and that didn’t work. So they closed.

      More restaurants should just close when they have played out their cards.

      As to food apps, I don’t get it. I don’t go out just for the food…it’s a shared experience that is hard to duplicate at home. And food served hot from the kitchen happens either at a restaurant or with home cooking. Delivery food is a poor second best, lukewarm and soggy (even though a former Indy tech cofounder with the same first name and initial is trying to change that).

      Reply
      1. AmericanDirt

        Hi Chris, I definitely appreciate your deduction, and I’d say the core of your analysis is still accurate, both for the restaurant you are describing, as well as the one featured in this blog. They are not the same. The establishment featured in these photos was, until 2017 I think, The Acropolis restaurant, a family-run institution in the Southport area. I’m not sure it received the same level of accolades as the one your describing, but it was there at this freestanding location for at least 25 years. And yes, “most restaurants should close when they have played out their cards”. Acapulco Joe’s, anyone?

        I hope food apps don’t take over and that restaurants remain immune to the completely web-ification of their industry, much the same way grocery stores have been, by and large, resilient. I hate to think of a culture where we become so enthralled with Grubhub or DoorDash that we merely have carry-out shops or even just kitchens, rather than sit-down restaurants. Not only is this devastating to the labor pool in the hospitality industry, but it means that the urban progressive-leaning culture (what I suspect to be the primary customer base for these food apps) are creating a surge in the industry for massive paper bags, plastic containers, disposable utensils, etc.

        I think there will be pushback, just as I feel nostalgia for old retail forms may help salvage shopping culture to a certain degree. Mall culture will never be what it was in 1985, let alone 2005, but as malls become as rare as Sears/Kmart is today, there may be some novelty to this “retro style”–perhaps enough appeal in novelty among a young generation (who by that point won’t know of a time when malls were big) that could be enough to save the 25% or so of malls that are still broadly successful today.

        Reply

Leave a Reply

Your email address will not be published. You are not required to sign in. Anonymous posting is just fine.