Restaurants no longer favor first floor spaces or prime locations

A commercial district near Gangnam Station, southern Seoul. [NEWS1]

The ground floor of a building in downtown Seoul used to be a hot spot for restaurants. But not anymore, as Covid-19 boosted demand for food delivery services.

When customers enter a jokbal (pig’s feet) restaurant in Gangnam District, southern Seoul, they are met with more than a hundred food packages waiting to be delivered. As all the seats are filled with the deliveries on the first floor, employees lead customers wanting to dine in to the basement floor.

“If we put the packages on the basement level, it would take extra time for the delivery workers to pick up the food, so we designated the first floor for delivery orders,” said an employee at the restaurant.

Some 29.5 percent of local restaurants used food delivery apps in 2021, up from 6.2 percent in 2017, according to Korea Rural Economic Institute. In January, the average monthly revenue of a restaurant using food delivery app Baedal Minjok increased 30 percent compared to two years ago, and the number of orders jumped 20 percent during the same period.

Such trend is certainly reshaping the real estate market. The first floor of a building, which is most visible and accessible for customers on street level, used to be the most popular and therefore most expensive spot for restaurants.

However, after Covid-19 took hold and subsequent social distancing measures were enforced, the difference between the monthly rent for the first floor and the second narrowed.

The average monthly rent for the first floor was 19,400 won ($15.5) per square meter in the January-March period this year at a single- or two-story commercial building measuring less than 330-meter-square in floor space, according to Korea Real Estate Board. That is 1.92 times costlier than that of the second floor, which was 10,100 won.

Before the pandemic outbreak in 2020, the first floor cost 1.99 times more than the second floor.

Restaurant owners’ preference for small spaces is growing as well, as the number of customers actually visiting restaurants for meals has declined. In turn, rent for bigger commercial buildings is dropping at a steeper rate than that of smaller spaces.

The monthly rent for small-sized commercial buildings averaged 19,400 won per square meter in the first quarter, down 4 percent from the first quarter of 2019. The monthly rent for large-sized buildings declined 8 percent during the same period, from 28,000 won to 25,500 won.

“[Restaurant owners] used to prefer spots near subway stations or first floors that are exposed to a larger population,” said a 48-year-old who runs a taco restaurant in Dongdaemun District, eastern Seoul.

“But these days, even a hidden spot in a narrow alley works just fine in terms of revenue as long as a motorbike can access it.”

The taco restaurant owner added that the low rent helps, too.

The downtown area has also lost its appeal to a certain extent. Restaurants no longer have to squeeze into downtown streets, since they can fare just fine near less-crowded residential areas thanks to people working from home.

The average monthly rent in major downtown areas in central Seoul dropped 6 percent from the first quarter of 2020 to 2022, from 75,000 won to 70,100 won. Rents in commercial districts in Nonhyeon-dong and Sinsa-dong, southern Seoul, declined 7 percent and 10 percent each.

Meanwhile, the average rent in Sanggye-dong, northern Seoul, which is a residential area, increased 3 percent to 26,300 won during the same period.

“After the Covid-19 outbreak, the sales decline was less steep for restaurants focused on delivery and takeout orders,” said Korea Foodservice Institute researcher Seo Yong-hee.

“The government and the private sector should support the self-employed to adapt to the changing trend and overcome the crisis,” said Seo.

BY CHOI HYUN-JOO [shin.hanee@joongang.co.kr]