The economic and financial feasibility of food innovation centers

Abstract

A Food Innovation Center (FIC) is an enclosed commercial space comprising a mix of complementary uses pertaining to locally-operated food growing, production, processing, testing, distribution, and sale. These uses include indoor vertical farms, commercial shared-use kitchens for start-up food businesses, rooftop greenhouses, food halls with local, artisanal vendors, and food-related R&D space, among others. While literature exists on the demand for locally produced food, there is still a gap in the industry's knowledge about the financing environment, development costs, and overall rate of success that FICs experience. The research presented in this thesis is intended to provide an overview of existing Food Innovation Centers via data on acquisition, construction, operations, and returns of individual projects. Does the FIC product innovation add value to urban industrial real estate, and is the FIC a feasible model, financially and economically, for industrial development? Survey analysis of 62 FICs and six in-depth case studies show that FICs are more prominently featured in commercial rather than industrial space and operate on a business model in which a developer owns the property but leases to individual tenants operating one of the FIC business components. Financing largely comes from the philanthropic sector, and some of the most ambitious FICs have partnered with municipalities to identify publicly owned land for a nominal ground lease to the city or below-market acquisition. Overall, the FIC product type is still under development, and more must be learned about the lease structures within the PC to generate more robust underwriting standards that will better attract commercial investment. The most proprietary component of FICs are indoor vertical farms, for which the technology supporting the farm systems is still very much in the nascent R&D phase and not yet prepared for commercial diffusion. FICs do, however, have the ability to impact urban residents who lack access to healthy food. Through procurement, distribution, and wholesaling operations that can take place at FICs, regional small farmers can more easily get their produce into an urban area for distribution to residents. Incubator kitchens can provide cost-effective means for urban residents to test their own business models in the food and beverage manufacturing industry, and the roles that FICs play in hosting public events increases the connection between consumers and the food they eat. FICs generate economic growth through their ability to launch small businesses and create stronger and more direct supply chains between farmers, producers, wholesalers, food and beverage providers, and ultimately the consumer.