As many traditional restaurants fought to make ends meet in 2020 amid the COVID-19 pandemic, ghost kitchens showed a significant amount of activity in the greater Los Angeles area. A recent report from CBRE showed that the takeout-only kitchens were among the most active retail occupiers in the Greater Los Angeles area, as many consumers switched to online food ordering.
Ghost kitchens, a commercial space existing for the sole purpose of filling online food orders, emerged in recent years due to new technology and rising consumer demand. Initially few and far between, the report found that as traditional restaurants were forced to close their doors, ghost kitchens became more successful than ever.
According to the report, more than 50,000 square feet of commercial real estate space in Los Angeles have been leased to ghost kitchen operators since the beginning of 2020. Some ghost kitchen operators leading the way include Family Style Kitchens, with seven Los Angeles kitchens and Bytetobite.industries, with eight locations.
“Its growth and popularity really came from the onset of the pandemic where restaurants were only permitted to prepare and serve food for takeout delivery so naturally a lot of companies copied that model … Delivery was becoming a bigger part overall of restaurateurs’ model but the pandemic really kicked it into high gear,” James Crocenzi, Senior Vice President of CBRE’s Newport Beach location.
While ghost kitchens led the way among other top retailers in the U.S., the report found the sector to have success nationally as well. According to CBRE, more than 1,500 ghost kitchen facilities were located in the U.S. by the end of 2020.
“People are cooking less at home and getting more food to go . . . It was just a lifestyle evolution. The cloud kitchen allowed a lot of small restaurateurs who didn’t have a lot of the resources built up to run a full service restaurant to build their brand and get out into the marketplace without having to lay out a tremendous amount of capital,” Crocenzi said.
While growing immensely in 2020, the report found that the consumer demand for ghost kitchens is not likely to die out anytime soon. In the next four years, CBRE predicts that the ghost kitchen market share of total restaurant sales is expected to reach 21 percent. Prior to the COVID-19 pandemic, ghost kitchens were estimated to only account for 10 to 15 percent of the total market share by 2025. Online food ordering app revenue is also expected to increase 62 percent by 2025, according to CBRE. In 2020 alone, approximately 111 million people in the U.S. used an online food ordering app, which was a 17 percent increase from the year before.
However, Crocenzi said the heightened demand for ghost kitchens in 2020 likely will not prohibit traditional restaurants from drawing in customers. Looking ahead, Crocenzi predicted restaurants will continue to benefit from the loosening of restrictions put in place during the COVID-19 pandemic.
According to the National Restaurant Association, traditional food and beverage sales across the U.S. remained at $1.3 billion in April, which is approximately two percent below sales recorded in February of 2020. In total between March 2020 and April 2021, total restaurant and food service sales were down $290 billion from expected levels, according to Association estimates.While still below pre-pandemic levels, total sales in April mounted to $64.9 billion across the U.S, representing the third strong sales increase in the past four months.
“There’s early indications now that, with restaurants that have opened to full capacity, their sales have exceeded what they’ve achieved before the pandemic,” Crocenzi said. “I think now consumers want to get out . . . They’re tired of eating out of styrofoam food containers. I, for one, think dining out will continue to be an important part of our lifestyle in the United States.”
