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What’s In Store?
Amid a Booming Economy, Lower Manhattan Retail Space Languishes
A new report from City Comptroller Scott Stringer finds that in one Lower Manhattan zip code — 10013, which covers parts of western Tribeca SoHo, and the Canal Street corridor in Chinatown — there are 319 empty retail spaces, comprising almost 300,000 square feet of unused property.
These vacancies amount to more than 12 percent of the total number of retail spaces within the district, and almost ten percent of all retail square footage (which totals slightly more than 4.8 million squares feet). These metrics contrast sharply with the City-wide average of 5.8 percent vacancy for storefronts.
The report also documents that all rents collected on occupied retail spaces within this catchment total around $180 million per year, while average retail rents hover around $60 per square foot per year. This latter metric has barely budged in the years 2007 to 2017 (the chronological range covered by this report), apart from dipping briefly to around $50 per square foot during the 2008 financial crisis, and spiking (equally briefly) to nearly $70 per square foot during the 2009 rebound from the recession.
The overall amount of retail space in this area jumped by more than ten percent (from 4.5 million square feet to nearly 5 million square feet) in the years between 2007 and 2013, in what was likely a reflection of Lower Manhattan’s turbocharged pace of development. This total has receded slightly in the years since (to approximately 4.85 million square feet in 2017), as the same wave of development has demolished some smaller buildings that were primarily devoted to retail, and erected in their stead much larger structures in which residential or office space above requires large, street-level entrances that partially eclipse former storefronts.
But while rents have held steady and the amount of retail space has grown or shrunk incrementally, property taxes on storefronts in zip code 10013 have skyrocketed in the years between 2007 and 2017, according to Mr. Stringer’s report. At the start of this period, such taxes averaged approximately $6 per square foot, then dipped briefly to below $5 during the 2008 financial crisis. Tax rates recovered in 2009, and then began a steady climb to $10 per square foot in 2011. These increases slowed momentarily in 2012 and 2014, but the overall upward trend continued through 2017, by which time the average square foot of retail space in the district was being taxed at $14 per year. This means that the tax liability for owning storefront space in Tribeca, Soho, and Canal Street has nearly tripped during a period when rents have registered no meaningful increase at all.
All of these changes have occurred against a backdrop of prosperity and growth. During the same years examined in this report, the five boroughs of New York City attracted 350,000 new residents and 660,000 new jobs.
Multiple factors have likely converged to render vast swaths of Lower Manhattan retail space unused. One of the so-called “Amazon effect,” in which the traditional brick-and-mortar business model for retail has come under strain as millions of shoppers have begun making purchases online. But another is gentrification, which has forced out legacy small businesses as landlords see to lure more fashionable tenants with deeper pockets, which usually means large, corporately owned chain stores or banks.
“New Yorkers have all seen the signs of our changing economy in the last decade, as vacant storefronts have become all too common and neighborhood institutions have fallen by the wayside,” Mr. Stringer reflected. “Even as our economy has grown, many mom-and-pop stores have been left behind, transforming spaces once owned by local small businesses into barren storefronts. This isnʼt just about empty buildings and neighborhood blight, itʼs about the affordability crisis in our city. We need to use every tool in the box to tackle affordability, support small businesses and ensure New Yorkers are equipped to succeed in the new economic reality.”
In his report, Mr. Stringer proposes three broad reforms to tackle retail vacancies: a tax incentive for retailers in high vacancy areas; streamlining the City approvals that sometimes stalls construction, inspection, and permits; and improvement to neighborhood planning that would incorporate an analysis of retail demand.
Manhattan Borough President Gale Brewer has long advocated for reforms that would limit retail vacancies. When she represented the Upper West Side in the City Council, Ms. Brewer worked with the Department of City Planning to create a special zoning district to preserve small storefronts by limiting the right of landlords to combine small retail spaces into large frontages to accommodate “big box” stores. As Borough President, she has also overseen neighborhood-by-neighborhood tallies of vacant storefronts. In 2017, Ms. Brewer co-sponsored a City Council bill to exempt affordable supermarkets from the City’s commercial rent tax, which levies at 3.9 percent surcharge on retail rent. This was enacted in tandem with another measure that gave similar relief to small businesses (defined as firms pay less than $500,000 in annual rent and earn less than $5 million dollars in yearly revenue) located between Murray Street and 96th Street.
Earlier this year, the City Council passed another measure, which it calls the “storefront tracking bill. ” This law compels landlords to register commercial spaces with the City’s Department of Finance, which will use the information to compile a database of all retail space in the five boroughs, both occupied and vacant.
In the meantime, further policy fixes are being debated. Ms. Brewer is pushing for a vacancy tax that would give landlords an incentive to fill vacant storefronts, while the real estate industry is proposing broad rollbacks in property and rent taxes, which they argue would provide a more compelling motivation to fill empty retail spaces.
Matthew Fenton
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