Robert Khodadadian – Commercial Observer

The Empire State Building’s main attraction — its views — will always be on top of it, but there’s a reason now to pay attention to the bottom of the tower.

As of its mid-November opening, you will find a Starbucks Reserve outlet in a three-level, 23,000-square-foot space once occupied by Heartland Brewery. It’s your familiar Starbucks café, but on steroids. It’s a restaurant and a full-service bar where you can order cocktails like Manhattans, martinis and whiskey sours that you probably don’t associate with coffee purveyors. Customers can find the usual diversity of coffee blends and mixtures available in hot or iced in tall, venti and grande, and can browse through a gift shop selling mugs, water bottles and blends of beans. Artwork combines the chain’s aesthetic with the building’s Art Deco sensibility. 

The Empire State Building’s Starbucks Reserve exemplifies New York City’s percolating coffee wars. Vendors face the prospect of less foot traffic due to fewer workers coming to the office every day, and also competition from companies providing free gourmet coffee to help reward those workers who do come in. 

Seattle-based Starbucks calls itself “the premier roaster, marketer and retailer of specialty coffee in the world, operating in 83 markets” globally. Per its Oct. 2 annual report, it employed about 402,000 people worldwide, about 258,000 of those in the U.S. It had 17,295 stores in North America, another 18,416 in other countries. It is the firm generally credited with seeing a market for the Italian espresso bar experience, where you can relax with a finely crafted cup of coffee and a pastry, in the U.S. and around the world.

“We’re all strung out on caffeine,” quipped Joanne Podell, a Cushman & Wakefield executive vice chair, who was part of a team that worked with landlord Empire State Realty Trust to get Starbucks Reserve into the Empire State Building. “It’s like a public-private club. You go there, you can be with your friends, you can meet people there, you can work there, you can have a good coffee and a snack there. It’s part of the social life of the city.”

But there’s more to the coffee bar phenomenon than Starbucks. There’s archrival Dunkin Donuts (now known as simply Dunkin — people of a certain age probably remember when Dunkin Donuts stores had counters, and the coffee ran second to its array of doughnuts). There’s a load of other chains vying for a piece of New York’s coffee market, like Blank Street Coffee, Gregory’s, Joe and The Juice, Blue Bottle, Bluestone Lane, Peet’s (owned by Starbucks) and more, including a bunch of one-off shops.

Before the invasion of the national chains, and the ones that would like to be national or at least regional, coffee was largely a mom-and-pop industry. Local roasters and bakers hoping to ply the local caffeinated masses with food and drink populated it.  

Then came the proliferation of laptop computers, rewarding those places that had the technology to allow consumers to linger in a coffee shop with Wi-Fi. A lot of these places are as modern as can be. You can order just about anything on their app. But as long as you can’t eat or drink on the app, executives can justify physical locations where you can shop, eat, drink, have an experience, and even take a picture you can post on Instagram.

According to data provided by commercial real estate services firm Jones Lang LaSalle, as of November, Starbucks had 190 shops in Manhattan alone, followed by Dunkin with 161. There were 19 for Bluestone Lane, 16 for Blue Bottle, nine for Costa Coffee, nine also for La Columbe, and nine for Stumptown Coffee Roasters. (The previous November, the count ran like this: 183 Manhattan locations for Starbucks, 157 for Dunkin, 14 for Blue Bottle, 15 for Bluestone, none for Costa, nine for La Columbe, and none for Stumptown.)

Of course, NYC also has those sidewalk coffee stands, which seemingly going back to the caveman, or at least the digging of the subway, have been serving up coffee in those famous Greek Anthora paper cups to anxious New Yorkers.

The store count goes in both directions. For example, according to Starbucks’ annual reports, 212 company-operated stores closed globally in the 12 months ending Oct. 2, and another 766 closed in the 12 months ending Oct. 3, 2021. 

This is hardly a new development. According to figures from brokerage CBRE, deals involving café and dessert restaurants in New York City peaked in 2019 at 95, outdoing the previous year’s record of 91. That would be the last full year before the COVID-19 pandemic. Deals fell to just 26 the following year (2020) before rising to 50 in 2021. It was 29 in 2022 through October.

“Coffee chains took a hit in 2020, but the lockdowns were just a speed bump,” wrote researchers from JLL in a February report. “Now, more people are making coffee runs, millions of office workers are working from home and clamoring” for coffee. Starbucks’ average sales per store shot up $1.9 million in 2021, according to the firm.

In the ’burbs, “the rise of the drive-thru has been a key driver of revenue,” said Brandon Isner, CBRE head of retail research for the Americas. He estimated there are about 200,000 coffee drive-thrus in the U.S., about 6,400 of them Dunkins, and another 3,900 attached to Starbucks.

“Coffee’s cultural impact on New York has become even more pronounced since the pandemic,” said CBRE retail broker Henry Rossignol, who’s done many New York deals. “It’s really a tale of two consumer values. Those who are perpetually in a rush, and want something fast and reliable, but maybe not the best quality. And those that care more about the ingredients, the ambiance.”

There’s actually two more conventional Starbucks in the Empire State Building’s ground-floor retail: one on East 34th Street is the typical outlet, and another on 33rd Street services the grab-and-go customer.

Attempts to obtain comment from the chains, both established and growing, were frustrating. They either failed to return communications, declined to comment, or responded but failed to follow up.  

Among Starbucks’ competitors, Blank Street, which originated in Brooklyn in 2020 and now has 30-plus locations in New York, plus shops in the United Kingdom, Boston and Washington, D.C., stresses unfussy store design and prices that start at $2.75.

Bluestone says on its website that it is “inspired” by the “coffee culture hub” of Melbourne, Australia, and offers both shops and a mail-order business. It sells bags of coffee with names like “Riptide,” “Bayside” and  “Sweater Weather Holiday Blend” by parcel.

Joe and the Juice, a Danish chain, offers 22 stores in the New York area, another three in the Los Angeles area, 14 in the Bay Area, plus others in Florida and Chicago. There are also some 54 stores in Copenhagen and its environs, another 57 in the London area, plus a smattering in continental  Europe, according to its website. As its name implies, it trades in coffee (Joe) and exotic juice-based drinks and shakes, plus sandwiches and other fare.

There are at least three things that these companies have to look out for. One is oversaturation, simply too many coffee shops, overestimating the market. It wouldn’t be the first time too much supply chased too little demand, going back to at least the 17th century Dutch tulip craze.

The second thing is the same problem facing office landlords: fewer commuters wanting to come to the office, and preferring to do their jobs in remote or hybrid locations, thus reducing foot traffic. The third is those very landlords and their tenants — private companies in most cases — treating coffee as an office amenity, upping the quality and variety of the free coffee available in the workplace, as one of many means of making workers who no longer have to commute in instead want to come in.

Those caveats don’t necessarily have to be killers, Rossignol said.

“When I’m in the office, I like to get out of the office a little bit,” he said. “CBRE has the best coffee, for the record. But it’s nice to walk downstairs, clear your head. You get a cup of coffee, hang out for five, 10 minutes and you go back up, and it provides a much-needed break.”

Rossignol and others in the brokerages don’t discount the possibility of too many coffee shops, and the possibility of a shakedown at some point.

“It’s the survival of the fittest,” Podell said.

The Empire State Building’s main attraction — its views — will always be on top of it, but there’s a reason now to pay attention to the bottom of the tower. As of its mid-November opening, you will find a Starbucks Reserve outlet in a three-level, 23,000-square-foot space once occupied by Heartland Brewery. It’s yourRead MoreChannel, Features, Industry, Leases, More, Retail, Tenant Talk, Blank Street, Blue Bottle, CBRE, Empire State Building, Starbucks  Commercial Observer Read More 

Robert Khodadadian has long had a simple philosophy about selling real estate. The way he sees it, there are approximately a million buildings in the city, and the broker that gets to sell any one among the multitude that will hit the auctioning block at a given moment is, sometimes, simply the person who happens to pitch their services to the right seller at the right time.

Robert Khodadadian, properties, ground leases, ground lease, off market, investment sales, khodadadian, Commercial Real Estate Sales, Commercial Observer, Retail For Lease, Commercial Observer,

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