Restaurant Paradox: Encouraging and Discouraging New Restaurants in Washington, D.C.

Research has suggested that zoning can have both anti-competitive and pro-competitive effects on retail establishments. The anti-competitive effects may be caused by limiting the number of certain types of retail establishments, by prohibiting some types of retailers, or by encouraging certain types of retailers over others. Other research has shown that zoning can increase competition by forcing or encouraging retailers to locate closer together. The result is that for retailers, consumers, and planners, the question becomes whether zoning can both hurt and help competition among retailers at the same time.

A good case study for this seeming paradox can demonstrate the multiple zoning considerations for a retailer, particularly a restaurateur, when deciding whether to locate in a particular location. In Washington, DC, one zone category both encourages and discourages certain retail establishments, particularly restaurants and bars. In 1990, Washington, DC adopted a zoning change for a particular corridor of the city. This corridor, known as the Uptown Arts Overlay District or colloquially as the “14th & U” neighborhood, was decimated by riots in the late 1960s, but its central location and good public transit provided a good basis for redevelopment. Partially as a means to encourage faster redevelopment of this area, the city amended its zoning regulations to create a zoning overlay along the commercial streets in this corridor that encourages retail and arts and provides incentives to developers. These zoning incentives provide bonus density to a development providing one or more various retail and arts establishments, including a theater and a restaurant.

However, some residents in the neighborhood near to the overlay zone feared that the area would suffer from an overconcentration of restaurants and bars. The result was that the overlay zone was amended in 1992 to limit the number of bars and restaurants within the overlay zone area. Following the recommendation of a community task force, the overlay zone was amended again in 2010, so bars and restaurants are limited to no more than 50% of the linear frontage per block. The overlay zone now works to both encourage and discourage restaurants: on one hand, developers and landlords are rewarded by providing a restaurant, but, on the other hand, possible restaurants are often prevented from locating in a desirable location because the block may have reached capacity. This leaves developers and retailers either racing against a competitor to open first or wondering whether it is worth planning on and investing in a restaurant in this location at all.

By all accounts, the “14th & U” corridor has been very successful in its attraction of new restaurants and businesses. Therefore, the pro-competitive effect of zoning in this location may be observed. Because of the density incentives, many developers seek restaurants as tenants, which has, in turn, encouraged more restaurants to locate here. Over the last 10 years, the result has been an explosion of new restaurants and intense competition for a consumer’s dining dollar along this corridor.

However, anti-competitive effects are present in the “14th & U” corridor too. Developers and landlords are the only entities that benefit from the incentives for bringing restaurants to their locations within this corridor. Without a certain location, an individual restaurateur wanting to open a new restaurant in this highly-sought after neighborhood faces the challenge of finding a block that has not already reached its capacity for restaurants. The result is that many restaurants may be deterred from opening in a desirable location because the zoning will not permit it due to saturation. The existing restaurants, particularly those on blocks that have reached capacity, are protected from competition that might otherwise enter the market. As long as the overlay zone continues, the paradox will persist: developers and restaurants will continue to seek restaurants as tenants, but prospective new restaurants will continue to encounter limits on their ability to locate in already saturated blocks. Whether Washington, D.C. has found the right balance remains to be seen.

Related topics: Development, Landlords, Restaurants, Retail, Zoning