The Benefits and Challenges of Second-Generation Retail Space

Panelists at the recent ICSC conference shared insights on second gen space and the flexibility it offers.

LAS VEGAS—During a panel discussion at ICSC Las Vegas, industry experts delved into the topic of second-generation space in real estate development. Kwame Brathwaite, SVP of real estate development at Kitchen United; Dannon Shiff, SVP of real estate at Dave’s Hot Chicken, Emily Durham, SVP of food and beverage advisory at JLL; and Patrick Chamberlain, Chief Development Officer of Hart House, all shared their insights on the advantages, challenges, and considerations associated with utilizing second gen space.

The Flexibility and Benefits of Second Gen Space

Brathwaite highlighted the flexibility offered by second gen space. He emphasized that the presence of existing equipment in these spaces can be advantageous, as it reduces costs and provides a solid foundation for new tenants. By working in collaboration with landlords and negotiating tenant improvements, businesses can leverage the existing infrastructure to meet their electrical requirements and create efficient operations, he said.

Brathwaite acknowledged that both second gen space and build-to-suit options have their pros and cons, highlighting the importance of partnerships and negotiations in making the most of these opportunities.

Speed to Market and Inventory Constraints

Shiff emphasized the significance of speed to market for their franchises. In their quest for efficiency and cost savings, they actively seek out second gen spaces, alongside other options such as ground leasing and new construction.

He also emphasized the key role played by flexibility due to a lack of available inventory in various markets. “Second gen spaces provide a valuable solution for businesses aiming to open quickly while keeping costs under control,” he said.

Flexibility and Considerations in Second Gen Spaces

Durham stressed the importance of flexibility for businesses to explore possibilities. She emphasized that a vacancy rate of around 4% in the overall retail market encourages tenants to consider second gen spaces.

However, Durham cautioned that not all second gen restaurants are equal, and businesses must assess the condition and compliance of the space. Older spaces that are not up to code may present challenges worse than those found in shell spaces.

Operational Considerations and Due Diligence

During the panel discussion, moderator Metcalf asked about the importance of recognizing potential issues in second gen spaces. Durham suggested that if a second gen space includes a drive-thru, it is crucial to test its functionality by driving a truck through it. Operational considerations, such as the functionality of hoods, play a vital role in the decision-making process.

Shiff stressed the need for thorough due diligence at the beginning of these deals to identify potential areas where additional investment may be required.

Consumer Behavior and Design Choices

Panel members were also asked about changing consumer behavior and its impact on their design choices. Chamberlain highlighted the evolving consumer demand for plant-based options in the fast food space. He emphasized that sustainability is a significant factor influencing consumer behavior and shaping their expectations. “Efficient sourcing of products and construction materials, along with finding cost-saving measures during the build-out process, are essential for meeting these expectations,” he said.

Adapting to Evolving Consumer Trends, Consumer-Centric Approach

Shiff expanded on the influence of third-party services on the real estate industry. He noted that customers are now willing to travel further distances for their favorite food brands, which has led to a rethinking of location strategies. Shiff explained that strategic planning considers filling the gaps between major markets, ensuring accessibility and growth opportunities for the brand.

Brathwaite also shared insights on how consumer behavior accelerated their growth trajectory. He described the transition from on-premise dining to at-home consumption during the pandemic, and learning from that. They developed an App, then third party delivery became a part of that. “There are people back out now trying to join each other in restaurants, but we haven’t lost the ability to order… It is about variety and selection and custom and that is where we see things develop and we are focusing.”

Check out other related retail stories you might have missed on the subject from the ICSC Las Vegas event below.

Green Street Finds Retail Sentiment ‘Overwhelmingly Positive’

From Online and In-Store Experiences to Immersive Entertainment

Industry Leaders Share Insights on Leadership Lessons Learned Over the Past Three Years

Coldwell Highlights Promising Market Opportunities Following ICSC Las Vegas

Experiential Offerings, Importance of Stability and Adaptability

Leasing Momentum and Optimism Abound

Retail’s Growing Demand for Sit-Down Dining, Quick Service and Medical Users

SRS’ Britt Raymond Spotlights Local Investors’ Rise

Looking for Innovative Solutions for Urban Grocery Stores/?

ICSC Las Vegas Kick Off: Unveiling the Latest Insights from Retail Powerhouses

Retail Industries Undergo Data-Driven Evolution, Says Datex CEO