Festivals take place in a space that's not really an official lot but an open area.
Which lot did you change to restaurant ? Is it only one specific lot or any of the lots around the market ?
When sims travel to a festival, they actually travel to a specific lot. In the Spice Market, it is the lot where the Waterside Warble Karaoke Bar is located. I changed that lot into a restaurant. Hope it is clearer!
Did you test if the same would happen with a retail shop ? Would be interesting to know.
I just tried and the bug didn't occur with a retail shop !
In my experience it happens if you own a buisiness. If you sell it to the game then the festival will happen. But if on of your Sims own the restaurant or any other business then the festival will not happen.
