Downtown Density and Dining Out

When Will Wynn (great name for a politician) was serving as mayor, his most frequent mantra was downtown density. The idea was to create an enterprise zone where a significant amount of potential retail and restaurant customers actually lived and worked downtown. With all the residential and business construction in the past five years, we are fast approaching that point. The question for the hospitality sector is two-fold:

1. Will there be enough of a critical mass to make all downtown dining viable? At this point the answer appears to be yes.

2. Given the robust forecast for increased building, is it likely that the restaurant segment may at some point find itself significantly overbuilt? Unfortunately, the answer appears to be yes there also.

One of the toughest things for a growing city like Austin to cope with is its own image. Pick up any business magazine if you have any doubts. The buzz surrounding Austin has returned with a vengeance. And all over the country restaurant owners may be thinking… what about Austin? Austin has already gone through several distinct cycles of overbuilding. In either residential or commercial, the market gets saturated, prices decline until they bottom out and properties are sold on the cheap. Then as supply drops, the building begins anew and prices start going back up. That’s all well and good. But the same model doesn’t always work for a restaurant.

Can downtown Austin accommodate another 30 or 40 restaurants and/or bars? From a physical space standpoint, probably yes. But we have a relatively limited downtown area compared to New York, Chicago, or other major dining cities. You can bet that as the buzz we referred to earlier continues to grow, those restaurants will be on the way. But once a saturation point is reached, those restaurants can’t simply lower prices and wait for things to bottom out. Most will go out of business first and then someone will come along and pick up the space for $.30 on the dollar. Good for realtors and cash rich investors perhaps, but possibly disastrous for the restaurant community where customers value continuity and stability as much as taste and a great wine list.

So as downtown density for the moment yields the customer model that Mayor Wynn envisioned, those who own downtown restaurants should batten down the hatches. Those high rises under construction are going to be like sirens calling to the Greek sailors. Downtown Austin is going to have more restaurants than any of us have ever seen or imagined. The question is, for owners and foodies alike, what comes after that?

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