One of the most visible blights of the COVID-19 pandemic is vacant storefronts in downtown business districts across the United States. Our town centers had suffered from commercial vacancy long before the pandemic, but COVID-19 has greatly enlarged the problem. As the nation emerges from the pandemic, it’s time to focus on revitalizing our downtowns by filling these debilitating vacancies.
Filling empty storefronts is a challenge for urban areas ranging from small towns to big cities – and they have good reason to prioritize the problem. Vacancies have a major negative impact on our town centers and neighborhood centers, depressing surrounding property values, encouraging more neglect and suppressing the growth of small businesses.
Luckily, we know a lot about how to grow local businesses, especially small manufacturers, and prepare them to make the transition from home-based or shared-space businesses to brick-and-mortar stores. The challenge is to match their needs with those of vacant storefront owners. Meeting this challenge involves understanding both why these properties are empty and how best to serve the interests of both parties.
The display cases remain empty for various reasons. Some are purely economic – if the space has been neglected, the cost of renovation may outweigh the rental rate the landlord can get for the space. If an owner has other income from the property, the owner may receive a tax benefit by incurring a loss on the storefront. A large investment company or trust may not be willing to rent space for less than the advertised rate for fear of jeopardizing underwriting by devaluing the space. In some cases, a guaranteed lease from a major national chain may result in rent being paid, even if the store is closed and the property is vacant. It may even prevent a competitor from opening there.
Other reasons relate to the mismatch between the needs of owners or their representatives and interested small businesses. The available space may be much larger than small businesses need, and landlords may not be willing to subdivide space or allow multiple tenants to share it. Landlords can also expect tenants to pay for building the space, something small businesses often can’t afford. If a commercial space is small, needs extensive work, or the total lease value is low, brokers may not pay much attention to the space, preferring to spend their time filling spaces with better prospects (more lucrative). An aloof and careless landlord may wish to hold on to a property in hopes of better days, especially if local authorities fail to enforce code violations or have any financial penalties for long-term vacant properties.
In this context, innovative approaches are needed. One option is to increase the adoption of vacant property ordinances, which typically impose additional fees on properties left vacant long-term. that of San Francisco The Commercial Vacancy Tax Ordinance came into force on January 1. The vacancy tax applies to ground-level commercial properties facing the street in certain neighborhood commercial districts, including major retail corridors. Washington, DC also charges a hefty fee based on the property tax rate on vacant or degraded properties.
Of the smaller towns, Mansfield, Texas has a vacant property ordinance that charges high daily fees based on code violations and vacancy. Raton, New Mexico, recently passed a Vacant Buildings Ordinance, requiring owners of derelict homes and buildings to register their property with the city and pay a fee that increases each year if the property remains vacant.
Another option is to use tax increment funding or other local funding vehicles to provide matching grants to landowners for building storefronts with signed-in tenants, as the Downtown Development Authority in Longmont does. in Colorado. It covers up to 50% of the cost of renovating a ground floor space and converting it from a commercial service use to a retail storefront. This option can be applied in markets where the cost of construction is not justified by current rental rates, and it can make storefront space affordable for small businesses.
A third option is to look for ways to get commercial ownership into local hands. The Urban Redevelopment Authority of Pittsburgh created the Avenues of Hope Commercial Real Estate (ACRE) Program. It offers long-term financing at a 1% interest rate – with no payments due for 20 years and no prepayment penalties. Funding can be used for site acquisition and preparation, building and construction costs, and soft costs associated with real estate development.
Another option is to invest in residential and commercial land trusts for downtown properties. Residential floors can be preserved as affordable or locally accessible housing, while a grant to ground floor commercial storefronts – in the form of reduced land trust rent – can provide space for businesses while preventing gentrification from driving these businesses out of the neighborhood. This approach is particularly applicable to high cost and very distressed markets where control of multiple buildings close to each other can be secured.
Options exist to revitalize vacant downtown storefronts. Taking advantage of these options will bring our downtowns back to life and show that America is truly ready to emerge from the pandemic.
Ilana Preuss is Founder and CEO of Recast City and author of Recast Your City: How to Save Your Downtown with Small-Scale Manufacturing (Island Press, 2021).