The Year Ahead: Cannabis, Restaurants and Health and Wellness Real Estate

Updated: Nov 10

Not long ago, landlords and investors were keen to attract restaurants and health and wellness tenants to shopping centers. The cannabis sector, too, was on a major growth trajectory. How has COVID-19 changed that?

Photo Courtesy of Lodi News-Sentinel.

Health & Wellness


Fitness club operators foresee consolidation as customers cut the fat from their budgets. “Many of the boutique fitness companies are small and not very well financed,” Orangetheory Fitness chief development officer Mike Mettler said at ICSC’s Now & Next conference. “We see a consolidation through the pandemic. We have strong competitors both in and out of our segments, but we definitely see some opportunity in this contraction.”


Blink Fitness CEO Todd Magazine said the expensive part of the fitness market will contract while the value segment will expand. Many players on the full-service end of the spectrum are filing for bankruptcy and closing locations, he said. “The next two to five years are a tremendous opportunity particularly during a recessionary environment. We saw it happen in 2008 to 2012 when the value fitness segment exploded, and we think it’ll explode again. … We’re well on the way to 1,000 locations but on a slightly different time frame than we had anticipated pre-COVID.”


Restaurants


Drive-through windows and pickup lanes for online orders are the future, restaurant executives said. “It provides an extra access point for consumers. Multiple access points are a necessity,” Chipotle chief development officer Tabassum Zalotrawala said. In July, Chipotle opened its 100th Chipotlane, as the brand calls its drive-thru lanes for picking up digital orders. “We expect more than 60 percent of our new restaurants to have Chipotlanes,” she said.


For Outback Steakhouse’s new quick-service concept, Aussie Grill, each new restaurant will feature a drive-thru window. “A lot of people prefer the drive-thru,” said Aussie Grill president Suk Singh. “They don’t want to step inside. It’s important to offer guests different opportunities to enjoy the restaurant. The more avenues you have, the better your sales are going to be.”


Cannabis


“There’s been an increase in sales across the board since COVID began from locals and tourists,” said Kellen O’Keefe, chief strategy officer for cannabis retailer Flower One. “We’re seeing larger ticket size and a continued normalization of cannabis.” The boom has given the cannabis retailer more money to expand and add products and services.


The sales surge is causing local and state governments to cooperate with cannabis businesses, said Hoban Law Group attorney Bridget Hill-Zayat, who helps cannabis businesses navigate the legal system. “More people who had a dispensary card were actually using it. Drive-thrus are being permitted for cannabis. Delivery to cars and to people’s houses is being allowed. Regulations for patients are being changed.” She added: “There’s a lot of money to be made taxing cannabis. Vice industries, alcohol and cosmetics tend to do well in markets that are struggling, but the drive is going to come from the state governments versus the federal government.”


Until the federal government legalizes recreational cannabis use, control of the industry will remain in the hands of a few small companies and investors, she added. “Five years ago, it was family offices financing cannabis operations. Now, venture capital is dipping its toe in. The bar is still extremely high because it requires millions.” States are creating smaller licenses that will increase minorities’ and women’s ability to get into industry, she added, “but until we have an end to federal prohibition, it’s going to be hard for an everyday person to get a loan for a marijuana business.”


As the cannabis sector gains legitimacy, more business disciplines are willing to get involved, spurring advancements in recreational and medical uses of cannabis, said Navin Pathangay, a partner in Inception Advisory Group, which helps cannabis businesses find the right properties. He’s also principal at Pathangay Architects. “We’re seeing a cross-pollination of companies coming together,” he said. “Outsiders are now interested in investing. They know it’s here to stay.”


Source: 2020 ICSC.

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