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'Vacancies are rampant' and other myths of city retail

‘Vacancies are rampant’ and other myths of city retail

New York is unbeatable when it comes to our diverse restaurants, shops and boutiques. To those who say the sky is falling in the retail sector, bear in mind that it has been in a perpetual state of flux since the early days of brick-and-mortar commerce.

Unfortunately a number of false narratives have taken hold during the rise of online shopping. Here are 10 common myths about city retail and why they are not true.

1. Retail vacancies are rampant. Actually, vibrant retail corridors exist throughout the city, and data from business improvement districts indicate vacancy rates are stable. In fact, retail square footage has grown 20% since 2004 in Manhattan alone. Since 1998 the city has added 90,400 retail jobs.

2. Businesses are closing only because of high rents. Nationally, the retail sector is in the midst of a monumental transformation. Locally, businesses face increasing costs from wage and benefit regulations, constant and arbitrary fines from city agencies, and anti-business sentiment in the form of community board denials of liquor licenses and onerous rounds of public review for routine Landmarks Preservation Commission approvals. The failure rate of retail businesses is the same as it was 20 years ago: 20% of businesses close within a year, and 50% within five years.

3. Rents keep going up with no end in sight. According to CBRE, the average asking rent in Manhattan has declined 18% in the past year, including 25% in the West Village.

4. Property owners benefit from empty storefronts. Even when storefronts are vacant, landlords have to pay property taxes—which have doubled in the past decade—and operating expenses such as utilities. There are no tax benefits for keeping space empty. The growth of new retail corridors means property owners need to adapt to compete. As rents have fallen, pop-ups with short-term leases have been on the rise to fill space.

5. A vacancy tax will fill retail cavities. In a retail market in transition, another tax would only add to the burden faced by landlords, a majority of whom are small owners. Co-ops that own their retail spaces need them filled to keep down maintenance costs. A vacancy tax also does nothing about regulatory hurdles, permit delays and community board denials.

6. The Small Business Jobs Survival Act is a silver bullet. Beyond questions of its legality, the City Council’s proposed legislation mandating 10-year leases won’t change small-business failure rates, which have been consistent for 20 years across all categories. This commercial rent-control bill ignores the growth in pop-ups and short-term leases as creative responses to the rise of e-commerce and would further restrict market flexibility.

7. Chain stores are too big to fail. National chains are not immune to retail failure, as witnessed by the demise of RadioShack, Toys R Us and others. Franchises such as Dunkin’ Donuts—with 612 stores, the city’s largest retailer—are independently owned, and many chain retailers began as small, independent businesses. Magnolia Bakery, Two Boots and Dig Inn all grew from single locations in New York City.

8. Restrictive zoning can reduce retail vacancies. To the contrary, limiting potential tenants makes it more difficult to keep stores occupied. A survey of retail on Broadway showed the highest concentration of vacant storefronts were in SoHo and on the Upper West Side, which have more restrictions on retail than the rest of Broadway.

9. Landmarking helps small businesses. Areas of the city with the most notable vacancy rates are in landmarked districts such as the West Village and SoHo and on Madison Avenue. Complying with their regulations is time-consuming and expensive; on average it takes more than three months to receive a storefront approval from the landmarks commission. In the West Village, it takes twice as long. Landmarked areas are also losing population and foot traffic, hurting small businesses.

10. The city itself is vanishing. New York is a dynamic city that is constantly evolving. While it is true that e-commerce is disrupting traditional retail, a growing number of internet sellers are opening brick-and-mortar stores. Successful retailers are also adapting with creative new uses focused on experiential retail.

If policymakers, advocates and the general public do not separate these myths from reality, we are liable to end up with responses to the problems that only make things worse for retail businesses and property owners.

John Banks is the president of the Real Estate Board of New York.

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