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Thursday, November 30, 2023
Nov. 30, 2023

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Office buildings that offer internal amenities, like restaurants, could be key to luring workers back downtown


CHICAGO — Nearly three years after the onset of the COVID-19 pandemic, many office workers still work from home, especially on Mondays and Fridays, depriving restaurants of the healthy lunch crowds they need to stay afloat and damaging prospects for recovery downtown.

But heading into 2023, there’s growing awareness that a new model could be the key to drawing employees downtown again and revitalizing parts of the city’s urban core.

The hybrid model of work is here to stay, said Steven Bauer, senior managing director of Cushman & Wakefield, but to make it work, companies need offices attractive enough to lure employees away from the comforts of home, and that means having an ecosystem of amenities inside the buildings and throughout the surrounding neighborhoods, including a range of eateries, from high-end restaurants to grab-and-go lunch spots. That’s why the downtown’s recovery is uneven, with new or renovated buildings such as Willis Tower, as well as vibrant neighborhoods like Fulton Market, attracting crowds while older properties in the Central Loop are still relatively quiet.

“In Fulton Market we’re seeing foot traffic comparable to what it was pre-pandemic, and that’s because there’s an ecosystem there,” Bauer said. “The fact that you can walk out of a building at 6 p.m. and there are good restaurants around the corner, as well as good bars and nightlife, is very helpful.”

The pandemic has been a bloodbath for restaurants. Since the beginning of the pandemic, 338 downtown restaurants, bars and bistros have closed, including landmarks like Ronny’s Original Chicago Steakhouse in the Thompson Center, chain cafes like Panera Bread and Boston Blackie’s at 120 S. Riverside Plaza, according to Datassential, an analytics firm for the food and beverage industries. The shutdowns included 13 fine dining establishments, 92 fast casual outlets such as Pret a Manger and 129 quick service restaurants such as Starbucks, Subway and Dunkin’ Donuts.

Activity perked up in the past few months, throwing a lifeline to remaining restaurants, according to Scott Weiner, co-owner of Fifty/50 Restaurant Group, which operates more than a dozen establishments across Chicago, including West Town Bakery and 90th Meridian, both in the financial district.

But “restaurants are typically most at risk of closing from November through March, because it’s the slowest time of the year,” Weiner said. “Anyone who is not well-capitalized is in a risky position, and I have to imagine that’s most restaurants right now. I think we’re going to see plenty of places go under, although probably not at the scale we’ve seen over the last few years.”

Foot traffic into downtown offices increased throughout 2022 after last winter’s omicron wave subsided and firms slowly began enticing workers back. In January 2022, foot traffic in 61 downtown Chicago commercial office buildings analyzed by Placer.ai, a data analytics firm that tracks mobile devices, was 68.7% lower than three years before. By May, foot traffic in the same buildings was 54.3% below the level of May 2019, and by November, the decline was 47.6%, somewhat worse than the average nationwide decline of 40%.

Restaurateurs have adopted a range of strategies to survive, said Sam Toia, president and CEO of the Illinois Restaurant Association, an industry lobbying group. Some closed their weaker locations or cut costs by paring down menus and reducing operating hours. Many also tapped into government lending and grant programs or negotiated new deals with landlords willing to accept lower rent, at least temporarily.

“Obviously, most landlords would rather see their space rented than not rented,” Toia said.

But property owners are now more reluctant to offer reduced rent, and for most restaurants another cash infusion from the government is unlikely. That leaves the industry, which typically has low-profit margins even in good times, in a precarious position, even as office usage ticks up.

“The restaurant business is a business of nickels and pennies, and they are all watching their nickels and pennies,” Toia said.

The pattern of office workers staying home on Mondays and Fridays shows little sign of changing, and even Tuesdays through Thursdays are slower than three years ago, said Doug Dunlay, an owner of 4 Star Restaurant Group, which runs Remington’s at 20 N. Michigan Ave. near Millennium Park.

“People at lunch are not typically able to walk more than three or four blocks,” he said. “They need something quick and nutritious and then get back to their desk. We had it bad, but we weathered the storm, and we’re on the other side of it now.”

Weiner’s restaurant group had to close Steadfast at The Gray, a Central Loop restaurant next to the Kimpton Gray Hotel, after business travel dried up and hotel occupancy plunged. It’s also kept 90th Meridian closed on Fridays. But it’s ready to launch new ventures, at least in some locations.

In January, Fifty/50 will open Kindling, a two-story restaurant in Willis Tower that will serve live-fire cuisine. It’s a bit nerve racking to open a new restaurant anywhere downtown, Weiner said, but Willis Tower just underwent a $500 million makeover and is the state’s top tourist draw, so it’s one of the few locations where it makes sense to take a risk.

“I would be terrified if I was opening this restaurant in a lot of other downtown buildings,” he said.

There are two markets in downtown Chicago right now, Bauer said. One consists of older properties, especially in the Central Loop, and the other is all the newest or most recently renovated properties, including 110 N. Wacker Drive, Willis Tower and the Old Post Office, buildings already packed with shops and restaurants, among other amenities. It’s this market where tenants are looking to rent offices and people are most often returning to work.

Bauer said buildings that want to successfully bring workers back in 2023 will need to refill their empty storefronts, so employees have places to gather and finally meet after spending so much time working from home. He recently helped a prospective tenant tour the Merchandise Mart, and the company signed a deal after executives saw the bustle at a cafe on the Mart’s first floor.

“They want to walk into a space that has buzz and activity, because they are coming back to collaborate and socialize, and the Mart is a great example of a building with a real ecosystem,” Bauer said.

And a great ecosystem needs more than fancy cafes or fine dining, he added. It also needs a variety of fast casual and quick-service restaurants, so employees have a wide variety of options.

“Owners don’t want these grab-and-go’s to sit vacant,” he said.

Potbelly Chief Operations Officer Adam Noyes said some of the company’s nearly two dozen downtown restaurants struggle to attract lunchtime customers on Mondays and Fridays, and that’s a challenge for small outlets, especially ones that pay downtown rents. But Potbelly did not shutter any of its downtown spots, partly because the ones serving tourists are doing quite well.

“If you only owned one or two restaurants that would probably be a lot of pressure,” he said. “You wouldn’t have the cash flow from other locations to balance out your portfolio unfortunately.”

Marci Berner and Julia Paphitis, the proprietors of Tatas Tacos, which has locations in Portage Park and Lakeview, said they are wary of expanding into the Central Loop while the office market remains depressed.

“We are a small business, and we don’t have deep pockets like some other restaurants,” Berner said. “The Loop is still very expensive and we’re still not seeing enough traffic.”

“We have avoided it like the plague,” Paphitis added.

The pair is ready to bring their modern, health-conscious spin on Mexican cuisine to the South Loop. They plan to open a third location next spring inside The Cooper, a new 29-story apartment tower at 720 S. Wells St.

The Fulton Market neighborhood just west of the Loop is also attracting new tenants and commuters, said Bauer. In November, the neighborhood’s foot traffic reached 90% of the level recorded just before the pandemic, while the Central Loop stood at 76%, according to Cushman & Wakefield data.

“The Loop has definitely improved compared to where it was six months ago,” said Russell Cora, executive vice president of developer Sterling Bay. “It’s been a steady build since Labor Day, but Fulton Market is definitely the hottest market in the country.”

Sterling Bay owns or operates several downtown buildings, including 600 W. Chicago Ave. in River North, 111 N. Canal St. in the West Loop, as well as 333 N. Green St. in Fulton Market, where it also broke ground in 2022 on two additional boutique office buildings, at 360 N. Green St. and 345 N. Morgan St.

These newest buildings include amenities such as ground-floor retail, libraries and rooftop conservatories, added Cora. Both are attracting a lot of interest, said Cora, with Boston Consulting Group signing earlier this year a lease for 250,000 square feet at 360 N. Green, and Wellington Management signing for 24,000 square feet at 345 N. Morgan.

Both companies will move from much smaller offices, he added, and coupled with plans by residential developers to create thousands of new apartments in Fulton Market, it signals activity in the neighborhood will ramp up in 2023.

“Employees will be able to walk to their offices, and that will change the dynamic over here even further,” Cora said.

Fulton Market restaurant owner Frank Callero said that sounds like hopeful news. He and several partners opened BLVD Steakhouse at 817 W. Lake St. in 2017 and Rose Mary at 932 W. Fulton St. in April 2021. Both serve evening meals to office workers and executives, and now that new office and residential towers are rising nearby, it may be possible to open BVLD, now open five days a week, for an extra day or perhaps open Rose Mary at lunchtime.

“It feels like we are coming back, but we’re still not at 2019 levels,” Callero said. “So, we will really need to see more lunch demand in the neighborhood.”

Bauer said he’s optimistic that the slow increases in downtown activity seen in 2022 will accelerate in 2023. Many corporate leaders held off deciding how they would approach bringing people back to work, but are now checking out new spaces, or finalizing plans to renovate their present offices.

“We like to think that there is some pent-up demand from companies that will make their decisions in the next six to 12 months,” he said.

That might finally restore downtown restaurants to health, but after so many milestones have passed without a big return to the office, Weiner said he and other entrepreneurs remain cautious.

“Until we have normalcy,” he said, “there is definitely reason to be concerned that the restaurant industry is not out of the woods.”

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