Vacant storefronts are not only a blight on neighborhoods but represent a loss of potential economic activity, including lost job opportunities and income for New Yorkers, as well as lower tax revenues. They also represent a sense of community as unique shops are replaced with banks, chain stores, or nothing at all. Almost every New Yorker can lament the loss of a favorite spot. This unfortunate trend has worsened over the last decade and may continue if changes are not made soon.
In his new report on vacant retail space New York City Comptroller Scott Stringer notes that between 2007-2017, the vacancy rate rose by nearly 50 percent across New York City. Reported vacant retail space roughly doubled over the last decade, rising to 11.8 million square feet in 2017, up from 5.6 million square feet right before the great recession.
This is not a Manhattan issue as all five boroughs are experiencing increased vacancies. In fact, some of the most significant increases in the vacancy rate occurred in outer reaches of the Bronx, Queens and Staten Island.
A major reason given for the vacancy increase (especially in the more suburban parts of NYC) is the explosion in e-commerce. In 2007, Amazon had $14 billion in sales and 17,000 employees. By 2017 those figures had risen to $177 billion in sales and over half a million employees. Internet sales accounted for less than one percent of total U.S. retail sales in 2000, 5 percent of total sales in 2012, and over 10 percent of total sales in the first quarter of 2019. This has led to a shift in how commercial space is utilized.
The number of bars and restaurants is increasing as is the number of service types of businesses. Such as barbershops, nail salons, gyms, and dry cleaners. Retail employment in New York City grew by 22 percent, while employment in bars and restaurants grew by 45 percent, and personal services employment grew by nearly 75 percent over the ten-year period.
As you can see, this growth is unevenly distributed as the outer boroughs and upper Manhattan is growing at a much faster rate than commercial and lower Manhattan.
Though the “Amazon Effect” is real it is far from the only factor for the vacancy situation. Rising rents play a significant role as well. Average retail rents over the ten-year period rose from $42 per square foot to $51 per square foot, an increase of almost 22 percent. Average rents rose especially dramatically in many zip codes with high retail rents, to begin with, doubling from $60 to $126 in Soho (10012), and from $79 to $146 on the Upper East Side (10021), an increase of 87 percent.
Although rents tend to be cheaper outside of Manhattan rents on new leases are rising. The general trend is toward higher retail rents on new leases in the outer boroughs. This is especially true in the Bronx, where both high end and low-end retail rents are rising. Going hand and hand with this is the increase in property tax payments by retail tenants. Retail tenants paid $1.1 billion in property tax in 2007 or about 20 percent of total retail rents paid. This figure jumped to almost $2.3 billion in 2017 or about 23 percent of total retail rents paid. This shift is likely driven by increasing assessed values and rising property tax bills, on retail property.
The last factor that Comptroller Stringer sees as the cause of the retail vacancy increase is excessive regulation. Regulations such as the landmark status of retail buildings, or slow or highly conditioned approvals by local community boards, or permitting and approval processes of City agencies, could all add to the time and expense of reconfiguring or updating retail space. Though the report does not see the landmark status issue as a significant driver of vacancy overall, there is evidence that the approvals and permitting process from community boards and city agencies is a significant factor in vacancies. As previously stated, bars and restaurants are taking up a larger share of the overall retail space. Delays in approval of a liquor license is an important impediment to such conversion. An important step in the approval process is a 30-day waiting period following notification of the local community board.9 The State Liquor Authority gives great weight to Community Board recommendations when approving and denying liquor license applications, and in imposing “stipulations” under which the application may be approved. Similarly, the share of the Department of Buildings’ alteration permits unapproved after 30 days is also a significant driver of retail vacancy.
So, after establishing that there is a serious vacancy problem in New York City, what can be done to improve it? in 2016 Comptroller Stringer’s Red Tape Commission spelled out some sixty steps the City could take to help improve the city’s small business environment generally. That report combined with some new ideas lays the groundwork for necessary change. Among the proposals which would help the retail vacancy:
- Split the Department of Buildings into two agencies, separating its inspection and remediation responsibilities from its permit and review functions.
- Require prompt removal of unused sidewalk scaffolding.
- Expand and improve the Department of Transportation’s PARK Smart program in retail corridors.
- Take a more pro-active, educational approach to helping small business owners comply with City rules and regulations.
- Provide tax incentives for independent merchandise retailers in high-vacancy retail corridors.
- Create single-point-of-contact customer service for businesses occupying retail space.
- Incorporate retail demand into neighborhood planning.
Though only 37 pages long (24 without the Appendix) Stringer’s staff did an excellent job analyzing the data and getting to the heart of why we are experiencing so much retail vacancy in New York City. It is vital for the continued success of New York that the climate, particularly the small business climate improves. If New York City is going to look and feel like any other city in America than people will refuse to pay the premium of living and investing here. Already we are seeing a southern exodus. Hopefully, this report helps spur the necessary changes.
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