Fewer people are waiting to be seated to dine at their favourite restaurants. Instead, they wait at home for delivery services like Uber Eats and Door Dash to bring them a variety of cooked fare. That doesn’t necessarily mean the eat-in restaurant will become extinct. Spatial economist Siyuan Liu examined how the rise of online food delivery platforms influenced commercial real estate demand.
Her paper, Space and Cyberspace: The Impact of Food Delivery Services on Retail Real Estate, was inspired when subject expertise met a growling stomach.
“I ordered a lot, probably too much, from food delivery platforms. As a Ph.D. student, I really can’t live without them,” Liu explained. “And I’ve always been interested in urban economics and retail real estate. That motivates me to study the interaction between online food delivery platforms and their spatial consequences, or how online and offline interact with each other.”
The delivery services were gradually rolled out across the US, enabling Liu to examine the causal impact of a given platform’s entry into each city and how that affected local retailers, especially restaurants.
While other e-commerce retail platforms, like Amazon, are widely believed have caused a retail apocalypse, forcing local retailers to shut down, Liu finds that food delivery platforms are different.
“They need to maintain a very close tie to local restaurants,” she explained. “You wouldn’t wait two hours to get your pizza delivered! So, these delivery platforms grow with local restaurants instead of replacing them.”
According to Liu’s research, consumers are benefiting from this technological innovation. Food delivery platforms have led to more restaurants and greater access to a wide variety of cooked food. However,
the widespread adoption of food delivery platforms has resulted in a retail real estate demand shock, and an unexpected beneficiary is the landlord.
“Because there are now more retailers competing for space, rents have increased,” Liu said, “but the supply of retail space hasn’t changed much. This may imply that although technological innovation is causing big changes, most of the surplus is extracted by landlords.”
The amount of space these new food enterprises need to create and sustain a business might be smaller, but they have more competition for any space at all.
“While big restaurants may not attract as many consumers, new formats like cloud kitchens are emerging,” Liu said. “Everything is becoming more lightweight and adaptable to online ordering behavior.”
While past research has examined how the emergence of food delivery apps has impacted employment, and restaurant resiliency during the pandemic, Liu’s examination of the effect on retail real estate is unique and offers much to enhance understanding of the changing restaurant industry.
“Siyuan’s job market paper demonstrates that the entry of food delivery platforms (FDPs) has resulted in increased demand for restaurant retail floorspace through new restaurant entry and reductions in average restaurant size,” said Professor Nathaniel Baum-Snow, Liu’s thesis advisor. “These patterns suggest that consumers value variety in restaurant meals, with FDPs lowering the cost of accessing this variety.”
Liu herself has contributed to the university in a variety of ways. She has been a teaching assistant for MBA level real estate economics and managerial economics. As Liu prepares to enter the job market, the PhD candidate has positive feelings about her time at the University of Toronto.
“I’ve been very active in student communities and collaborative projects, and I enjoy discussing ideas with colleagues,” she said.
Return to the Department of Economics website.
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