The Business Rent Is Too Damn High: The Bike Store Edition

I know I hit this theme a lot, but an underemphasized problem many booming cities are facing is skyrocketing business rents. If residents want affordable prices, along with more interesting options–and those interesting options often not the businesses that make money hand over fist–then business rents need to decrease. Today’s edition–bike shops (boldface mine):

Local officials and developers seek to encourage bicycle use in D.C. with new bike lanes and larger storage facilities, but many retail bike shops have been forced to shut their doors as the market becomes more challenging for independent businesses….

“It’s a very difficult and changed market for bike shops right now,” The Bike Rack owner Chuck Harney tells Bisnow. “People aren’t buying as many bikes as they used to, and if they are, they’re buying them online. The days of an urban shop with a large floor and a lot of inventory are gone. That’s done.”

Harney opened The Bike Rack’s second location at Brookland’s Monroe Street Market development in 2015. Within one year, he had already begun receiving rent abatements from the landlord because the shop was not meeting sales targets, a problem he partially attributed to underwhelming foot traffic due to the lack of an anchor grocery store at the development…

WABA Communications Director Colin Browne said he was disappointed to see the recent closings because it could make it harder for some residents to access bike shops. He thinks the issue is more attributable to retail rents in D.C. and doesn’t see an overall decrease in bike ownership.

“My sense is that the problem, at its core, is a real estate problem,” Browne said. “Bike shops are a hard small business to run, and real estate in the region is just getting more and more expensive. People like the idea of having a bike shop in the neighborhood, but the reality of how much it costs to maintain a space and a staff is a lot.”

Many businesses are being pushed to brink by rents. It’s all the more galling because, in many neighborhoods (not just lower-income ones), storefronts are left vacant because businesses don’t want to pay the rent–walk through Adams-Morgan sometime. I know of many businesses that were doing fine, but the landlord–often one not based in D.C.–got greedy, jacked up the rent, and the current tenant had no choice but to move. And then the same storefront sits empty.

If a landlord proposed a significant rent hike, causing a business to move, and the property then sits vacant for more than six months, the owner should be fined an amount equal to the proposed rent hike every month thereafter, until a tenant is found (at any rental price). We need to stop ‘land banking’ and start keeping the businesses that make cities interesting.

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5 Responses to The Business Rent Is Too Damn High: The Bike Store Edition

  1. Bill says:

    Or do away with the tax advantages that vacant land lords enjoy

  2. coloncancercommunity says:

    This is a problem that is happening all over. During the Great Recession, large swaths of real estate, both residential and commercial were bought up by private equity firms and sometimes hedge funds. The difficulty with rents comes from the ability of these “landlords” (white collar criminals) to leverage their loans based on their most recent rental rate. This is particularly true in the commercial markets because they refinance every few years. Since the value of the building is determined by current rental rates, this creates a problem. So renting at TRUE market value – the price that a reasonably profitable brick and mortar business can pay – is not happening. The purpose of land banking is to RESET rental rates to a level that is totally inconsistent with precedent or affordability.

    They SIT ON THE PROPERTIES, for years and years where I live. Right now, a good 20% of our retail storefronts are empty. One thing I have found out is that they are interested in renting to large franchises EXCLUSIVELY. Even the few Mom & Pop stores or restaurants that show a complete ability to pay the required rent are turned away.

    This creates a revenue problem for our city since the sales tax is an essential part of our city budget. It also creates maintenance issues as landlords don’t keep up their properties. It can create more crime as loiterers hang out and do drugs around these vacant areas. I spoke to the commissioner of pubic safety once and he said the vacancy rate was a policing issue. It also hurts existing retail. After all, who wants to shop in areas where half the buildings are boarded up?

    Another crazy side-effect is that in order to recoup the lost revenue our city has created the parking Gestapo. If you are so much as 1 minute late YOU WILL HAVE A TICKET. The municipal lots are pay-to-park 24/7. Since public transportation is very spotty at best to our downtown, the result is a dramatic fall-off in regular traffic which impacts the businesses that are left. Local retail is increasingly dependent on those who live or work within walking distance.

    Taxing landlords who leave their storefronts vacant for any length of time would be a solution. But the “pain point” of the tax would have to reach a rate where leaving their rental units unoccupied is not financially feasible. This might be difficult because private equity firms have deep pockets.

  3. Joe Shelby says:

    One major contributor is that when neighboring blocks are re-developed, it bumps up the property values, and therefore the tax rates, for the properties that haven’t “upgraded” yet.

    When Harris Teeter moved in to Falls Church, for example, the valuation spike on EVERYTHING on route 7, bumped up tax rates so high that the landlords often had no choice but to bump up their leases. This has led to at least a dozen closings of long-established small businesses, including a used book shop that had been there for decades, and Mad Fox Brewing, one of the most respected brew-pubs in the area for almost a decade.

    So there is a degree to which governance is an issue here – to keep the small town charm, the cities and counties have to accept that they need to not let tax numbers rise with the rapidly inflating property values. Loudoun tends to set its rates after the assessments, so that property taxes don’t explode when a new “thing” moves in that bumps up property values, forcing lots of people to leave.

    Fairfax and Falls Church need to do the same, or else Fall Church will turn into the thing that is Silver Spring: mostly empty but for a few brand names.

  4. Bern says:

    I’ll disclose my long career in the bicycle industry, just to say that altho I can’t profess intimate knowledge of retailers’ problems overall, I can at least speak to bike shop struggles.

    Bicycles have long been one of the lowest return on investment items retailers could ever attempt to sell, and the industry leap to online everything has been devastating in many ways. It is feasible for consumers to purchase bicycle parts (costing $500 in US stores) from online retailers oversees and get them delivered to your door all for less than $450. Some wholesale distributors charge shops more for some items than retail consumers can find those same items oversees. Add big city retail storefront rent. That is not sustainable.

    It is not unique, but it is real, and very troubling. The death of mom ‘n pop-ism is painful to witness.

  5. kaleberg says:

    Clearly taxes on empty properties are way too low. Investors who wanted to hold a property for future development usually wound up building a bare minimum space to generate enough rent to pay the real estate taxes. Those properties, often single story but surrounded by much taller buildings, were called “tax payers”. The cause may be our massive capital glut driving up prices, but low taxes are another problem. Maybe we want to tax properties a dollar for the first vacant month, two dollars for the next and so on. Short term vacancies would be cheap, but long term one expensive.

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