City Hall is scrambling to find ways to fill vacant retail spaces. It may all boil down to fixing how local government regulates commercial land.
Amid a booming economy and record unemployment, the abundance of vacant storefronts in San Francisco would seem like a problem that should fix itself. But that’s hardly been the case—a global slump in retail sales, online competition, and a cutthroat real estate market have created a perfect storm for small businesses looking to establish a brick-and-mortar presence. Neighborhoods, in turn, are left with empty streets and a dearth of sales tax revenue to fund services. What can a city do?
Getting businesses into storefronts
Hot on the heels of an emphatic January 2018 report from the Mayor’s Office of Economic and Workforce Development (OEWD), Supervisors Katy Tang (Sunset) and Ahsha Safaí (Excelsior) have introduced a two-year pilot program to attract small businesses. Their effort focuses on streamlining permit approvals by three to six months, preventing a common pattern where businesses are forced to lease empty space and pay rent to commercial landlords while waiting for permits.
“Our residents want more places to dine and shop within our neighborhood,” Supervisor Tang said in a press release. “With the process as it is today, small business owners often spend thousands of dollars to rent an empty space while waiting for City approvals.”
Qualifying small businesses— with the general exclusion of formula retail—would be able to apply for a Conditional Use Authorization (CUA) without the requisite period for giving notice to the neighborhood, which, depending on the lease agreement, may force business owners to make rental payments while the retail space remains vacant. Businesses applying for other permits, such as liquor licenses, cannabis, or entertainment permits, would still need to give notice through those regulatory frameworks. Tang’s office noted that businesses that do notify the immediate neighborhood of their applications almost always receive approval.
OEWD found that retail growth significantly lagged behind San Francisco’s overall economy. Part of that is due to the increase in online sales, which accounted for 40% of the city’s retail growth between 2014-2016. But it is also explained by a general decline in demand for traditional storefront retail, with steady growth in the restaurant and hotel industry accounting for a growing share of the City’s sales tax revenue.
Over the past three years, a large sampling of commercial corridors in the City reported flattening sales, and a third of Neighborhood Commercial Districts (NCDs) reported an increase in vacancies.
Aside from reducing the costs of a lengthy permitting process, the OEWD report also recommended that the City allow for more flexible uses in retail space and innovate their business models—this could include temporary “pop-up” stores that require smaller spaces, but also allowing bookstores and galleries to sell food, or allowing businesses to share storefronts.
There are carrots, and then there are sticks—and the punitive “stick” has generally been lacking. Although the City required property owners to register vacant commercial properties and pay a nominal fee in 2014, the Department of Building Inspection can only enforce the policy upon receiving complaints, not proactively. Supervisor Aaron Peskin has also called for the City to implement vacancy taxes, but a crowded electoral ballot delays this possibility for at least several months.
District 2 Supervisor Catherine Stefani, recently appointed to succeed now-Mayor Mark Farrell, said she saw opportunities in enabling a greater variety of uses to reduce commercial vacancies, but also lamented the City’s complaint-based enforcement of vacant storefront fines. “I was disappointed to learn that the Vacant Storefront ordinance is not being pro-actively enforced,” the Supervisor said in a statement. “I plan to work with Supervisor Fewer to strengthen enforcement—and perhaps the ordinance as well. I’m also taking a hard look at the NCDs in my District and working with the merchants to consider how we would implement flexible uses.”
Getting customers into stores
Stores need shoppers, and shoppers need to get to the stores. There, too, the city has begun to rethink how it facilitates such mobility.
The OEWD report also found that successful commercial districts rely on the consumer spending power and population density of surrounding neighborhoods to generate reliable sales. “Anchor tenants”—businesses that attracted customers from other neighborhoods—were key to driving foot traffic for nearby businesses. As the report notes: “The quality of the pedestrian environment and of public spaces can help attract (or potentially drive away) potential customers. Cultural events, other special events, and public space programming can also help draw foot traffic.”
“Buying habits have changed. It’s not just Amazon, it’s not just the landlord—millennials value experiences, they don’t value that fancy Mercedes anymore,” said Vas Kinris, Executive Director for the Council of District Merchants Associations (CDMA), a consortium of local business groups. Kinris echoed the findings of OEWD concerning public safety and cleanliness, as well as the boon of pedestrian-centered cultural events. “People don’t respect dirty streets, and shoppers don’t feel safe in empty corridors,” Kinris explained. “No business will open on a street that is not safe, or is dirty…So we need to be attacking this vacancy problem in a holistic manner.”
Kinris argued that the City could be approaching the aesthetic appeal of streets with a multi-pronged approach—from cleaning and parking enforcement to marketing and events planning—but one aspect can’t work without the other. “This is such an activity-rich city, and it really pulls customers from one part of the city to another,” he added. “That’s where the city can step in, as a big brother, and help subsidize some of the fixed costs,” Kinris noted, lamenting that some fees such as security and transit detour payments for street events had risen faster than some businesses could afford.
OEWD also found that multi-modal transit options were key to a thriving business district, and recommended managing curb space “to support a pedestrian-friendly environment,” and find ways to work with ride-sharing companies such as Uber and Lyft, which drop off riders but generally require less long-term parking. This was coupled with a recommendation to provide support for small businesses to increase their online presence—effectively, whether by ride-sharing apps or Yelp and Facebook pages, using technology to help bring bring customers and stores closer together.
Removing individual parking spaces for any other use has always been politically contentious in San Francisco—notably, when bus-only lanes were introduced along Mission Street, merchants revolted and nearly overturned the policy. But evidence from Salt Lake City showed that the recent downtown retail boom was aided in some areas by removing parking in favor of protected bike lanes, which increased sales. Similarly, surveys from across the Bay Area have consistently shown that merchants overestimate the share of customers that reach them by personal automobile—the majority arrive on foot and/or by transit.
Filling empty storefronts in San Francisco may depend on a serious paradigm shift in how the City functions, and how its infrastructure supports mobility and commerce. Inch by inch, it will start with experiments like Tang and Safaí’s, gradually reallocating its scarce street-level land for businesses that adapt to modern consumers—and at a speed that matches the pace of change.
But for struggling businesses, Kinris noted, solutions can’t come fast enough: “Everything needs to happen all at once,” he said firmly.
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