From New York City (boldface mine):
Over the past several years, thousands of small retailers have closed, replaced by national chains. When they, too, fail, the stores lie vacant, and landlords, often institutional investors, are unwilling to drop rents.
A recent survey by New York councilmember Helen Rosenthal found 12% of stores on one stretch of the Upper West Side is unoccupied and ‘for lease’. The picture is repeated nationally. In October, the US surpassed the previous record for store closings, set after the 2008 financial crisis.
The common refrain is that the devastation is the product of a profound shift in consumption to online, with Amazon frequently identified as the leading culprit. But this is maybe an over-simplification.
“It’s not Amazon, it’s rent,” says Jeremiah Moss, author of the website and book Vanishing New York. “Over the decades, small businesses weathered the New York of the 70s with it near-bankruptcy and high crime. Businesses could survive the internet, but they need a reasonable rent to do that.”
Part of the problem is the changing make-up of New York landlords. Many are no longer mom-and-pop operations, but institutional investors and hedge funds that are unwilling to drop rents to match retail conditions. “They are running small businesses out of the city and replacing them with chain stores and temporary luxury businesses,” says Moss.
In addition, he says, banks will devalue a property if it’s occupied by a small business, and increase it for a chain store. “There’s benefit to waiting for chain stores. If you are a hedge fund manager running a portfolio you leave it empty and take a write-off.”
…Like Moss, Zendell believes it’s too simplistic to blame Amazon. The same signals of over-pricing are seen in every area of real estate, including housing. “When you see [that] every corner has a bank or a pharmacy, and there is a gym on the second floor, there’s a simple reason for that: people can’t afford the rent.
“Why did restaurants go to Brooklyn? Because it’s cool? No, because it was cheap, and [because] restaurateurs were sick of giving investors’ money away so they could pay their rent.”
As some asshole with a blog noted about D.C. restaurants:
When it comes to food, in too many neighborhoods there simply isn’t enough profit margin in ‘cheap eats’ to pay these kinds of rents. But a six dollar hamburger transformed by the magic phrase ‘fast casual dining’ becomes ten dollars–and has a pretentious name that causes David Brooks to freak out….
The exceptions to this phenomenon are those businesses where the business owns the building (e.g., Ben’s Chili Dogs). But if a business is renting, it’s too hard with low margins to survive. While D.C., and other cities, do have some local store and restaurant initiatives, if cities can’t figure out how to get business rents under control, we’re going to end up with a lot of overpriced stores and restaurants–which is another reason why lower-middle and middle class people are concerned about gentrification.
While housing rents are the usual focus of discussion, if we don’t want cities to resemble high-density strip malls, we need to help businesses stabilize rents.