Prescriptions for vacant storefront epidemic

Like overcrowded subway platforms and gleaming new high-rise condo buildings, the sight of shuttered storefronts along Manhattan’s retail corridors has become a familiar fact of life for the borough’s residents in recent years. The narrative is familiar: neighborhood businesses, squeezed by the steady rise of online shopping and exploding retail rents — which rose 44 percent in Manhattan from 2006 to 2016 — increasingly find themselves priced out of their longtime storefronts, only to be replaced by chain stores or left vacant for extended periods of time.

Though there is abundant anecdotal evidence and broad consensus among business owners and lawmakers that storefront vacancies are an issue, the city has yet to conduct a broad study on commercial vacancy rates and their causes.

“One of the challenges that we have is really measuring the impact that this is having across the city,” Rachel Van Tosh, a deputy commissioner with the city’s Department of Small Business Services, said at a Dec. 14 city council hearing on the economic impact of empty retail space. “We don’t have scalable ways to collect data on storefront vacancy right now, including not just counting, but understanding all of the underlying causes.”

Underlining the lack of reliable citywide data, SBS officials at the hearing said they could not identify which areas have been most impacted by vacant storefronts, even at the borough level. SBS has relied on Business Improvement Districts and other local partners for neighborhood-level information, but to date the city has no official criteria for collecting or analyzing data on retail rents or vacancies.

In the absence of official citywide data, a number of elected officials and local organizations have conducted their own vacancy studies focused on specific neighborhoods or corridors. In 2017 alone, City Council Member Helen Rosenthal conducted a survey that found a 12 percent vacancy rate among storefronts in her Upper West Side district; a report from State Senator Brad Hoylman found vacancy rates of nearly 20 percent along a prime stretch of shopping space on Bleecker Street; and the office of Manhattan Borough President Gale Brewer canvassed the entirety of Broadway, from the Battery to Inwood, counting 188 empty storefronts.

“We need that kind of data citywide,” Brewer said, adding, “These surveys occurred at different time frames, with different metrics, and they all have a different patchwork of data. And that’s the problem. We need to have something that’s apples-to-apples.”

“Unless we quantify the problem before, during and after we attempt to enact a solution, how will we be able to assess our success and how to best proceed in combating commercial vacancy in our neighborhoods?” Brewer said. “So the bottom line is we really need the data and we really need the agencies to help us gather it.”

Improved data collection on storefront vacancies is among the recommendations outlined in a report on supporting neighborhood businesses released by the city council last week. The report calls for SBS to collect comprehensive information on storefront retail in every community district in the city on a periodic basis, so that trends can be identified and compared across neighborhoods.

SBS officials cited e-commerce, neighborhood divestment, speculative pricing by landlords, and businesses failing to keep up with changing clienteles as contributing factors, but were reluctant to offer an overriding narrative of the causes of storefront vacancies. “There have been many reports and studies about this topic, but perhaps the key takeaway from the research is that the underlying causes of vacancy are complex and vary from neighborhood to neighborhood, corridor to corridor, and property to property,” Van Tosh said in her testimony.

Council Member Dan Garodnick laid out his understanding of the problem at the meeting. “My theory [...] is that somewhere in the time period of 2013 to 2015, there was a significant drop-off of retail as a result of the prevalence of online shopping,” Garodnick said. “Contemporaneously, landlords were getting increasingly opportunistic about their rents and hopeful that they would be able to do better and better and better over time, forcing some businesses out and discontinuing other leases.

“The result was vacancies that had rents that were being sought which were way too high for the existing market situation,” he continued. “And, based on the demands of lenders for particular building owners, they did not want to necessarily jump in and take lower-rent leases, lest it subject them to difficult conversations with the people who lent them the money to buy the building in the first place. At the same time, some of these businesses may not be coming back and there’s not yet been a commensurate reckoning with the fact that we may have a changing commercial local situation. That confluence of factors has left a lot of these storefronts vacant.”

Garodnick, who will leave office at the end of the year due to term limits, recently saw the council pass legislation he had long championed that will decrease the number of small businesses required to pay the city’s commercial rent tax, imposed at an effective 3.9 percent rate of a store’s base rent on businesses in Manhattan below 96th Street. The estimated 2,700 business affected by the measure will receive between $11,300 and $13,000 in annual tax relief, on average. The council’s report recommends that commercial rent tax relief be expanded to more businesses, an idea Garodnick has supported.

Other possible solutions detailed in the report aim to address the problem from a number of perspectives, including zoning and land-use changes, tax policy and financial incentives, and expanded city services for small businesses at the neighborhood level.

One proposal to help fill storefronts in high-rent areas, where long-term vacancies are often driven by landlords holding out for tenants willing to pay the highest possible price for a lease spanning ten years or more, would offer a tax incentive or direct subsidy to incentivize landlords to offer long-term leases with provisions limiting rent increases upon renewal. An alternative proposal calls for fines to be imposed on property owners who hold storefronts vacant for long periods of time without lowering the asking rent—a stick for landlords engaging in so-called warehousing, as opposed to the carrot of a tax incentive.

Garodnick and other council members have been clear that a wide variety of solutions will be necessary to stem the tide of small business loss. “No one silver bullet will likely fix this problem,” Garodnick said.