Starbucks has left some landlords in the lurch as it slows an aggressive store expansion, alienating developers critical to its growth.
The world’s biggest coffee shop chain has hit the brakes on new cafés in the face of rising construction costs and falling same-store sales. Last month Starbucks suddenly closed hundreds of them.
The pullback has created bad blood — and led to at least one lawsuit — with the commercial real estate industry, which long embraced Starbucks as a reliable, investment-grade tenant and in turn supported its rapid spread across the US retail landscape.
“Starbucks is not a deal or a tenant that I would ever consider again,” said Max Ullman, principal at Growth Property Group, a developer who had a project with the chain cancelled this year. “I haven’t even had one cup of Starbucks since, I have such a bad taste in my mouth.”
The Seattle-based company has been the fastest-growing chain in the US restaurant industry, adding almost twice as many locations as the next fastest in 2024, according to Technomic.
Starbucks had 17,230 operated and licensed stores in the US as of June, thousands more than McDonald’s. Developers have been fundamental to Starbucks’ growth, buying and building cafés that meet its design standards, then often selling the leased properties to investors.
The company this year has refused to move into some custom-built stores, real estate executives say, denting its appeal as a tenant.
“There are a lot of extremely frustrated stakeholders: brokers, principals, developers, et cetera,” said Patrick Luther, co-head of national net lease at SRS Real Estate Partners, a commercial property broker.
Starbucks developers have been calling him to say “I just won’t work with them again, or this is the last one I’ll be building for them”, he said.
Luther said he was representing an investor who was trying to resell or find a replacement tenant for a store that Starbucks shut down months after it opened.
Clint Jameson, managing partner at CenterPointe CRE, said that in cases where Starbucks has not moved into completed new stores, “a developer may already have $2mn or more invested with no clear path forward”.
Jameson, whose Phoenix-based company has developed more than two dozen Starbucks, said his business was not affected by the closures and he had a positive relationship with the company.
As for stores where Starbucks backed out, “my hope is that Starbucks is working with those developers to buy out the leases or structure fair exits that allow them to pivot without absorbing the full financial loss”,he said.
But in some cases, Starbucks has not been able to reach an amicable solution.
Darpan Patel, managing director for investments at Marcus & Millichap, a commercial property broker, said Starbucks had sent notices to some developers saying it did not intend to take possession of newly built shops. He knows two developers in the Midwest whose new buildings will be vacant on completion.
“I’ve heard it from multiple developers,” Patel said. “One of my top developers just delivered six sites in the last two years. And on his most recent two sites he had to fight them to take the site.”
In a lawsuit, developer Arsh Investments accused Starbucks of breaching its lease for a café months after signing it in January.
Starbucks asked Arsh to halt permitting for the property about 90 miles south of Seattle because it intended to redesign the interior, the lawsuit claimed. But a redesign never came, according to the complaint.
Instead, in late June Starbucks told Arsh that it wanted to back out of the project in the city of Chehalis, Washington, the lawsuit claims. John Jamnback, a lawyer for Arsh, and Starbucks both declined to comment.
In a note last month, Starbucks chief executive Brian Niccol said the company opened and closed coffee houses every year “for a variety of reasons, from financial performance to lease expirations”.
“I believe these steps are necessary to build a better, stronger, and more resilient Starbucks that deepens its impact on the world and creates more opportunities for our partners, suppliers, and the communities we serve,” Niccol wrote.
The number of company-operated stores in North America was set to fall by only 1 per cent in the fiscal year that ended last month and Starbucks intends to increase them again this year, Niccol wrote. Several new coffee shops had opened so far this month in states from California to New York, Starbucks said.
This would not be the first time Starbucks has had tense relations with landlords. in 2008, several landlords and developers sued the company as it shut down stores during the financial crisis.
While Starbucks stands out for its large retail footprint, it is not alone. “There’s nothing that feels different about what Starbucks is doing than any other national, Fortune 500 tenant that slows down their expansion,” said Shai Wolkowicki, managing principal of Chicago-based developer the W Companies.
However, Wolkowicki expected Starbucks’ slowdown would lead to more legal battles and potentially shake developers’ confidence.
“A pullback from a brand that once defined ‘prime-corner’ locations signals a more cautious consumer environment and a shift in how retailers evaluate long-term performance,” he said.
About The Author
