Is there a way to concatenate grouped lists into a set in Java 8 in one line?

You could with Java-8 simply use toMap with a mergeFunction defined as:

public Map<String, Set<String>> parseApiEntriesIntoMap(List<Restaurant> restaurants) {
    // read below about the null check
    return restaurants.stream()
            .collect(Collectors.toMap(Restaurant::getNeighborhood,
                    r -> new HashSet<>(r.getRestaurantList()), (set1, set2) -> {
                        set1.addAll(set2);
                        return set1;
                    }));
}

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Apart from which, one should ensure that the check and the result from the first block of code from your method

if(restaurants == null) {
  return null;
}

when on the other hand dealing with empty Collections and Map, it should be redundant as the above code would return empty Map for an empty List by the nature of stream and collect operation itself.

Note: Further, if you may require a much relatable code to flatMapping in your future upgrades, you can use the implementation provided in this answer.

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Or a solution without using streams, in this case, would look similar to the approach using Map.merge. It would use a similar BiFunction as:

public Map<String, Set<String>> parseApiEntriesIntoMap(List<Restaurant> restaurants) {
    Map<String, Set<String>> restaurantListByNeighborhood = new HashMap<>();
    for (Restaurant restaurant : restaurants) {
        restaurantListByNeighborhood.merge(restaurant.getNeighborhood(),
                new HashSet<>(restaurant.getRestaurantList()),
                (strings, strings2) -> {
                    strings.addAll(strings2);
                    return strings;
                });
    }
    return restaurantListByNeighborhood;
}

You can also flatten the Set<List<String>> after collecting them using Collectors.collectingAndThen

Map<String, Set<String>> res1 = list.stream()
            .collect(Collectors.groupingBy(Restaurant::getNeighborhood,
            Collectors.mapping(Restaurant::getRestaurantList, 
                    Collectors.collectingAndThen(Collectors.toSet(), 
                            set->set.stream().flatMap(List::stream).collect(Collectors.toSet())))));