The Limits of Café Urbanism

Hip restaurants have helped revive cities. But is the boom fizzling out?
March 2017
(David Kidd)
Alan Ehrenhalt
By Alan Ehrenhalt  |  Senior Editor

Picture yourself on a bustling commercial street in a hip neighborhood of a newly revived city. You cruise the sidewalk, checking out the businesses that line the glitziest block or two. Here’s what you’re likely to see: a high-end restaurant with pricey small plates and an ambitious chef; a gourmet pizzeria with locally sourced toppings; an artisanal yogurt shop; a microbrewery; and a coffeehouse. And maybe another coffeehouse.

A thought pops into your head: This isn’t a business district, at least not in the old-fashioned sense. This is a food corridor. Scarcely any commerce other than restaurants exists here. What we’re talking about is café urbanism.

In many comeback neighborhoods, it’s a reasonable estimate that locally owned restaurants are responsible for at least three-quarters of the resurgence. They are a fundamental source of the increased sales and property tax revenue that these rejuvenated areas enjoy. And serious scholars have argued that café urbanism can be an engine for the broader success of the surrounding metropolitan area. Back in 2001, the economist Edward Glaeser and two co-authors studied local economic performance and found that the number of downtown restaurants existing in a metro area was a consistent predictor of population growth. More recently, the transportation researcher Matthew Holian wrote that a boom in a region’s city center restaurants could be linked to reduced auto travel and lower greenhouse gas pollution.

While those conclusions may be a bit of a stretch, it seems undeniable that café urbanism has been a genuine blessing for cities that have been able to achieve it. But what if, over the next few years, it starts to peter out?

That may already be happening. In 2016, according to one reputable study, the number of independently owned restaurants in the United States -- especially the relatively pricey ones that represent the core of café urbanism -- declined by about 3 percent after years of steady growth. The remaining ones were reporting a decline in business from a comparable month in the previous year. “We’re seeing more upscale restaurants closing,” industry analyst Warren Solocheck told one reporter last fall. Mainstream media sources have begun using the phrase “restaurant recession.”

The numbers aren’t definitive, and they could be misleading. But they jibe ominously well with what’s been happening in the place where I live, the Clarendon district of Arlington, Va., just outside Washington, D.C.

Clarendon is a textbook case of the café urbanism phenomenon. Thirty years ago, it was a tired and boring old commercial corridor, the faded downtown of an inner suburb that no longer seemed to need one. Then the restaurants came in, most of them opened by Vietnamese and other Asian immigrants eager to take advantage of depressed storefront rental costs. These establishments proved so unexpectedly successful that by the mid-1990s, Clarendon had become a mecca for eateries of all ethnicities and price ranges. In the first decade of the new century, the balance began to tilt toward white tablecloths and entrepreneurial chefs. Curious visitors began coming to Clarendon from all over the Washington metropolitan area, and tourists began stopping by to check it out.

Five years ago, the few adjoining blocks that make up commercial Clarendon offered adventurous diners a bonanza of intriguing choices: foie gras, sesame seared tuna, charred baby octopus, bison carpaccio. Most of the restaurants seemed to be doing well. A couple of them closed in 2012, but the local consensus was that they were victims of uneven quality or an excess of close-by competition. Most of those remaining seemed to be attracting healthy crowds for dinner on ordinary evenings.

Nobody was predicting what happened in Clarendon in 2016 -- a wave of failures that amounted to a local restaurant die-off. Within the space of a few months, nearly a dozen major restaurants closed their doors, many of them well liked by reviewers and locally popular, some of them fixtures in the neighborhood going back a decade or more.

The immediate reaction to the die-off was to look for purely local causes. Clarendon had lost a substantial share of its daytime office population to federal staffing cutbacks, depriving some of the restaurants of the lunch trade they needed. Then there was a transportation/density issue: Clarendon isn’t especially friendly to automobile traffic, and some proprietors felt there might not be enough people living within walking distance to support a dozen high-end restaurants in a small urbanized space.

But this isn’t just happening in Clarendon. It appears to be the case in lots of other demographically similar parts of the country as well.

The fact is that most of the chic independent restaurants that bring excitement to gentrifying neighborhoods have never been especially profitable. According to the National Restaurant Association, a dining establishment that charges the typical customer $25 for a meal may clear a profit of about 4.5 percent on its operations -- and that figure does not include the capital costs for construction work on the restaurant or the debt service owed to the lender who financed that work. Given its dicey profit margins, an independent restaurant may need to be crowded most of the time to be financially healthy. Some manage to pull this off, at least in hot neighborhoods of big cities, but a larger number don’t achieve it on a sustained basis.

Even restaurants that turn in good numbers at the cash register are getting hit by escalating costs. Places like Arlington have become much more expensive to live in over the past couple of decades, and they have also become more expensive to do business in. Commercial property taxes have risen quite a bit in Clarendon in recent years. It’s the landlord who has to pay these taxes, but often it’s the restaurant tenant who ends up covering most of the increase in the form of higher rents. “Rents are skyrocketing all over our area,” says Kathy Hollinger, who heads the Metropolitan Washington Restaurant Association. “Some of it is becoming alarming. They can’t keep laying on these expenses.” Or, as food writer Kevin Alexander put it last year, “Your success often ends up pricing you out of the ’hood you helped revitalize.”

On top of all that, there’s the issue of labor costs. No one disputes that they’ve been rising pretty substantially in the restaurant business. Labor is estimated to represent about one-third of restaurant expenses. Much of this is minimum-wage labor, at least in the kitchen, but as the minimum wage goes up in much of the country, it becomes an increasing factor in overall costs. This hasn’t been an issue in Arlington in past years, but it’s an ongoing problem for San Francisco, Seattle and other cities that are seeing dramatic increases in the wages of their least-well-paid workers -- partly the result of local minimum-wage mandates. In one survey in San Francisco, a quarter of the restaurants going out of business cited higher wage costs as a reason for their demise. That’s not an argument against better pay; it’s just a piece of the larger puzzle.

Overall, it’s possible to survey the restaurant scene in gentrified America and conclude that nothing terribly worrisome is taking place. Arlington still has more than its share of nice places to eat, and if you look out a little more broadly, at the much larger District of Columbia next door, you see that there’s been a virtual explosion of creativity and culinary entrepreneurship that doesn’t seem to be ending.

But if you extrapolate from the most recent numbers, it’s also possible to envision another scenario for many communities a few years down the road: a combination of a few very expensive “special occasion” restaurants, along with high-profit-margin drinking establishments and low-end pizza-and-burger chains, with a gradual erosion of the more adventuresome, more interesting independent dining places that have been the catalyst for so many reviving neighborhoods. As our societal problems go, I wouldn’t argue that this ranks near the top of the list of calamities. But if you’re the mayor of a city or suburb that has been reaping the benefits of café urbanism, you might want to ponder whether there’s something you can do to prevent the gradual demise of your golden goose.

I’m no expert in restaurant economics. But a few issues seem to stand out as simple common sense. One is the crucial role of rents and leases. Local governments can insulate restaurants against some of the worst depredations of the market by guaranteeing them a chance to renegotiate their rental terms on a fair basis when the lease comes up for renewal. Several cities have done this or contemplated doing it; New York has been debating it for years. Another is licenses and permits. Several of the restaurateurs familiar with the Clarendon situation insist that the county’s regulatory strictures have been unhelpfully burdensome. This may or may not be true, but it’s something governments probably should be paying more attention to.

Underlying this whole subject is the question of whether café urbanism is a sufficient strategy for sustaining long-term urban revival. It would be encouraging to walk down the street portrayed at the beginning of this column and find, in addition to a cluster of restaurants, a hardware store, a drugstore, a grocery and maybe a clothing store or two. No local government can snap its fingers and lure businesses like these to its commercial streets. Stand-alone hardware stores are, in most of the country, a relic of times past. Groceries come into reviving neighborhoods when the residential population grows large enough to support them. Still, it’s worth pointing out that, in the end, the secret ingredient of a sustainable neighborhood comeback is commercial diversity. Cafés are wonderful; in some places, they may not prove to be enough.