Retail Space Available

A friend of mine told me last weekend that he thinks the two biggest issues in NYC right now are the rise of homelessness and the proliferation of vacant retail spaces. One is about not having a space to live and the other is about a glut of vacant space. Interesting dichotomy.

I was walking home from the gym this morning and passed this sign on a vibrant shopping street in our neighborhood.

It got me thinking about what this glut of vacant real estate is all about. Is it the result of so much commerce moving online that retailers can’t make a profit selling out of a store anymore? Is it the result of rents being too high and when landlords bring them down, we will see the spaces fill up again? Is it a combination of both? And can technology help address this problem?

We are seeing an avalanche of startups that are taking the fractional ownership idea popularized by Airbnb and WeWork and applying it to new and different areas. For example, popup stores instead of long term leases. 

We are also seeing retailers using technology to attract shoppers into their stores and supplement the the inventory they have on hand.

I do believe that in person shopping has a place in the online era, but I also believe that too many retailers are stuck in an old model that is not working anymore. The Gotham Gal, who started her career in retail, has been blogging about this topic for over a decade and saw this change coming long before the stores started going vacant.

My guess is that we are in the early innings of a long and painful restructuring of retail, ground floor real estate, and the shopping experience more broadly. And I think we will be seeing more signs like the one I photographed this morning in the coming years.

But that doesn’t mean there isn’t opportunity in the midst of this painful process. In fact, it means there is a lot. And those entrepreneurs that seek to help the shopper, the retailer, and the landlord will have the greatest opportunity to reshape this sector and build large and lasting businesses.


Comments (Archived):

  1. TeddyBeingTeddy

    They will all make excellent Halloween pop up shops.

  2. TeddyBeingTeddy

    How do you feel about real estate overall as an investment class? So many forces at work that will impact all real estate. Hard to know winners and losers, but a change is coming fo sho

  3. Elan

    Dear Fred, the NY based startup the Storefront could be a long term winner with their Airbnb type marketplace for short-term retail ( pop-up spaces).

    1. jason wright

      sharing a space might work better than random acts of drive-by pop-ups.

  4. Noah Rosenblatt

    its sad to watch evolve. all the mom and pops that we have known for past 15-20 years. Interesting to see how new models may change how ground floor retail leases operate on a landlord/tenant level. On a consumer level, Im wondering if these spaces will operate in more a services capacity when viewed in long term over next 10-15 years

    1. Drew Meyers

      Space as a Service is certainly a trend that’s playing out.What sorts of services do you see these spaces offering? I think we’re going to see growth in niche physical world experiences.

  5. DJL

    Interesting story from Houston. We work near a massive space called Town Center. It is littered with “Vacant” signs on the ground floor. I approached them last year about starting a co-working space and taking over two adjacent spaces. Their response was: “We only lease to retail stores and restaurants.” When I said, “well, if you have 10 startups officed in the area that will help your retail traffic” They looked me with a blank stare.Some of these landlords are going to have to go bankrupt before they get it.

    1. Pointsandfigures

      Shopping malls are like this too. One thing that some of them have going for them is great location with access to public transit or highways and plenty of parking. Another innovation could be private schools in a shopping mall…..also easy to put in place security for them.

      1. DJL

        They will have to reinvent or die.

    2. PhilipSugar

      What is that mall where you take the Sam Houston road from IAH to 1-45 to get to the Woodlands. I mean that place looks desolate. The Woodlands seems to be thriving.

      1. DJL

        That was the old greenspoint mall. Totally dead.

        1. JLM

          .It is functionally obsolete and has mold issues.JLMwww.themusingsofthebigredca…

    3. JLM

      .What project are you talking about? Is it CityCentre?Where is it located?JLMwww.themusingsofthebigredca…

      1. DJL

        Yes, CityCentre in Sugar Land. I would estimate 50% of the non-food real estate is open.

        1. JLM

          .I know the money behind that deal. It is an “open air” mixed use project with street facing retail, condos/office above structured parking, hotel (Marriott). I don’t think they’ve started any office buildings, but I could be wrong.They have no anchor retail, so they have the usual suspects — lots of food (Jimmy Johns, TexMex, PF Chang’s to Perry’s Steakhouse), men’s/women’s/maternity clothes (Jos A Bank), bridal, new furniture/interiors (LOFT), hair/nail salons, ATT phone, eyeglasses, kitchen (Sur la Table), music, cigars, Relax the Back (specialty).What is missing is a bank, drug store, and a dry cleaners. They are probably going to put a bank on the ground floor of one of the office buildings.It is a pretty standard unanchored open air shopping center tenant mix. No huge traffic generators. I would give them a B+ to A-. I am always suspect about unanchored retail.They are selling condos which take a lot longer to become peopled than apartments. This will take some time to generate the on site demand until the units are sold and occupied.I would not have put a workspace on the ground floor of the retail. I would entertain it on one of the upper floors of one of the office buildings, so I can’t fault them for their lack of enthusiasm.A top notch operation which hit a grand slam is the Domain in north Austin. It is anchored by Neiman Marcus, Macy’s, Dillards, Nordstrom, Saks Fifth Avenue, Whole Foods and the kind of upscale retain one would expect to be in their company.The design is essentially the same, but the tenant mix is different.The big benefit of the anchored retail is the traffic.JLMwww.themusingsofthebigredca…PS – 35 years ago, I used to bird hunt on the Domain property

          1. Amar

            It is absolutely crazy how different the Domain demographic is compared to the zip codes abutting it. The folks living in the Domain condos are so similar to the 2nd street, South Lamar population though they are separated from each other by a city 🙂

      2. Chimpwithcans


    4. LE

      They are looking for a particular tenant mix and that makes sense. In my condo complex here I blocked a school from going into a vacant unit because the complex is a medical complex (with some office including my office) and I didn’t feel that a school (with children) fit into what we are doing here. To much parking issues and to many other issues and that assumes the zoning even allows it. Would not be good for doctors if parents are lingering in the lot and taking up parking and then people can’t get to their appointments was my reasoning. Got that squashed fairly easily.The owner of the unit ended up going bankrupt. I then bought the property from the bank. (Wasn’t why I objected but that is what happened). And the complex thanked me. I now pay condo fees that they couldn’t collect for over 2 years.Why was the property vacant in the first place? The owner leased to his wife who was a title company. She started during the last real estate runup. They were doing so well they wanted to buy the property next door (occupied by medical). Luckily they didn’t. Years later of course the market drops and now they can’t even keep the single space occupied. And can’t pay the condo fees. Or their mortgage. Or taxes.I bought it for 1/2 of what they paid for it roughly 10 years ago. And what they paid was before putting money in it and renovating very nicely. As Trump would say ‘all the risk had been taken out’ when I bought it.

      1. DJL

        The old adage “You make money when you buy real estate – not sell it” rings pretty true.

        1. LE

          I think people trivialize the buy part. I got it at that price (1/2) because I took the time to track down the attorney for the bank that was not being paid for the mortgage. I then negotiated (without any other bidders) a great price. So to my point that I have made here many times I put effort in. And in the end it didn’t matter to me if I got it or not. Only at what I thought was the ‘right’ price. And of course it was a cash offer as well and I made it easy for them to transact. In another case I got a bargain because the realtor knew and thought it was easier to give me the deal than to actually market the property. But to get to that point I had to get to know them and buy other things as well. Didn’t just happen. And I am a small fish obviously. I even almost pulled off getting the condo complex to give me reduced or no condo fees in exchange for buying the property. In the end they didn’t agree (but they were going to) because of two jealous board members. That is fine though it almost worked which honestly was more important than the money part (the game).

          1. DJL

            To me buying a properly at a great price is like finding a valuable piece of art in a garage sale (which I have never done.) But it helps to love the hunt just as much as the trophy.

        2. jason wright

          true, over time, the property market being a very long frequency cycle.NYC is the victim of too much global financial capital chasing a safe haven. The UN HQ being in the city exacerbates that, with so many diplomatic delegations present in the city, and with their diplomatic immunity status a legal shield. I wonder how much overseas investment is actually dirty money from corrupt governmental elites, in Africa, and Asia, and all points in between? Your State Department almost certainly looks the other way as it is in service of its foreign policy objectives.

  6. Mike Chan

    what about using this vacant real estate to provide homeless people a place to sleep?

    1. TeddyBeingTeddy

      That’s exactly what San Francisco is for.

      1. Mike Chan

        And a place to poop, too.

    2. jason wright

      That would require property owners to have a social conscience.

    1. jason wright

      They could offload it all tomorrow if they priced it up right. It’s the same psychological disease i observe everywhere, pure greed, and in the UK it comes directly from London and is visited on the provinces like a plague.

  7. Euan

    Some of this is retail restructuring/ecommerce. But some is due to increased corporate ownership of commercial retail space in NYC and similar cities (as opposed to smaller landlords who might own one or two storefront spaces at most). Large entities can write off losses from vacant storefront space against profits on other (rented) spaces in their portfolio. They can therefore carry vacancy much, much longer. They hold out in the hope of landing a ‘triple A’ credit tenant who will pay top dollar, such as a bank or large pharmacy chain. These chains have different than other retailers incentives which factor into the rent calc – they are trying to ensure blanket coverage for their customers (never more than X blocks walk from an ATM etc) and also derive value from having their brand signage be prevalent even if that particular location is a money loser. That’s why you see so many of those types of tenants, especially on visible corner lots. The high rent paid by such tenants then becomes the new normal anchor point for future commercial spaces on that block, and landlords are reluctant to sign a long term lease below ‘market comps’. As a result smaller, more interesting neighborhood retailers are priced out. Not an easy issue to solve. People have talked about a vacancy tax to incentivize large landlords to move inventory, but that’s unlikely to work for various reasons.

    1. LE

      Yeah it’s called business. That is the way business operates. If I make money then I am less desperate and I can name my price. Or wait.Large entities can write off losses from vacant storefront space against profits on other (rented) spaces in their portfolio. They can therefore carry vacancy much, much longer. They hold out in the hope of landing a ‘triple A’ credit tenant who will pay top dollar, such as a bank or large pharmacy chain.You are reading to many articles by writers who don’t own any property themselves.I am not a large entity at all. And since almost all of my real estate is occupied sure I can hold out for a tenant that I like rather than just anyone. Explain how that is somehow wrong? Do you want me to take the risk and then do what is in your best interest?If you (yourself) make money and you buy real estate then you are free to do whatever you want and take less money or a less desirable tenant.By the way real estate involves risks. Even a large tenant can go bankrupt. I don’t know why people think it’s some kind of gravy train and landlords are printing money.

  8. kidmercury

    the next iteration of hte shopping mall is a place that collects pop up stores. the strategy of anchoring fixed retailers around a big retailer like macy’s is done. the new experience is you go to a big venue, new stores every week, mall provides all the infrastructure for connecting users to popup stores. it’ll be huge! 😀

    1. BillMcNeely

      Checkout neighborhood goods in Plano, tx

      1. kidmercury

        yes, that’s exactly the kind of thing i’m thinking of. thanks for sharing. i think another analogy is farmers’ markets: often a changing cast of vendors, live music/activities, community vibe. if anything i think farmers’ markets are growing in popularity, as the craving for local community is getting stronger and not being satisfied by life-less malls with static, mass-produced offerings.

    2. Drew Meyers

      Agreed. AppearHere, Storefront and even RE:Store

    3. jason wright

      the unbundling of the department store? in the UK the traditional departments stores are crumbling, but mall owners and city authorities seem locked in to the old anchor tenant model. It’s on life support.

  9. Joe Lazarus

    Interesting to think how different cities might look in 10-20 years… fewer and / or more experiential retail stores, less parking required with self-driving cars, and what not.

  10. Mark Cancellieri

    Rents are definitely too high if there is an oversupply. Either rents will have to come down to clear the oversupply, or demand will need to increase somehow.A rapidly increasing minimum wage is probably hurting demand. Increasing automation could possibly increase demand. Rezoning some of the properties for residential use could also help. Who knows?

  11. Danielle from Outlaw Soaps

    We’re in online retail primarily. Direct-to-consumer pricing is so much better for margins, and you’re able to gain many more insights into your customer’s interests (through analytics and purchase history).Brick-and-mortar stores now have an opportunity to be a more curated shopping experience, rather than just a place to buy stuff. We love brick-and-mortar purchasing experiences because they give us a good opportunity to have our brand surrounded by other products like ours, in a better context than just on Amazon.I think the future is about context and experience, and stores need to focus on the whole experience in order to survive.

  12. CJ

    In Illinois it can be more profitable for retail spaces to remain empty due to a tax write-off that can be claimed. Alternatively, renting the space for less can lower the amount of that write-off if the space goes vacant again so lots of landlords opt to just keep the rents high and the spaces empty which can keep neighborhoods blighted.

    1. David Albrecht

      What writeoff? I’m from IL and don’t know of any such thing.Though I don’t doubt it exists in some local areas.

        1. David Albrecht

          Thank you.

        2. JLM

          .What you are talking about is the right of any property owner to protest the amount of annual property taxes levied by a taxing entity.The property owner is using the “income approach” to valuation which is one of three generally accepted approaches:1. Comparable Sales Approach2. Cost to Replicate Approach3. Income Approach.None of the three overrules the other. If you protest your property taxes, which you can do right after the county assesses your property, you can expect the county to fight back with an alternative approach.If your income drops to zero and the market is otherwise soft, it is fair to suggest that your property has declined in value, but this is not a tax writeoff, it is a reduction in the operating expense called “annual property taxes.”If the property next door sold for $100/SF and is comparable, you will make no headway if you go in and ask for a reduction below that value just because your property is empty.There are firms whose entire practice is focused on protesting property tax assessments.JLMwww.themusingsofthebigredca…

          1. CJ

            I believe it works that way in most places that aren’t Illinois. I’m not a real estate guy or tax guy(though I do know a bit about property taxes, you have to in Cook County or get swindled) so can’t argue the technicalities.What I do know first hand is that there is a ton of empty commercial real estate in the Chicagoland area in desirable locations that have opted to remain empty and when Rauner is willing to sign this bill it means to me that it’s gone from obvious to egregious as he’s a pretty pro-business republican governor.

    2. LE

      for retail spaces to remain empty due to a tax write-off that can be claimedSure if you own rental property and you are a landlord you can deduct taxes and expenses. So what? Don’t you think the landlord would rather have income and make money off the property?Please explain how it is ‘more profitable’ for a property to remain vacant rather than occupied I’d love to know that because it doesn’t make any sense at all. I think I figured out what you mean. You mean ‘if vacant reduce the property taxes’. That doesn’t change things in my mind.So is this what you are talking about here:…Current state law allows the owners of properties that become vacant unexpectedly to ask tax officials for a break on their bill — as long as they are doing everything possible to find a new tenant for the store or office.In that case it appears that the property taxes get reduced if the property is vacant. And that is what should happen. Why? Because if you apply (where I am for example and it’s probably similar elsewhere) for your property taxes to be reduced and you have a tenant as part of the appeal they will want to know the money you are making on the property (among other things). And if you make a large amount on the property they will deny the appeal. They might even say ‘oh based on you making $100k of profit a year the building should be valued at $000000000 and we want more tax from you.’This appears to be what you are describing as ‘a tax write off’ and that is not what is going on.Once again. Any landlord wants to have a property occupied. And no the vast majority aren’t holding out for top dollar either. Any plan of action will penalize all sorts of landlords and be detriment to the market if you are forced to rent to anyone.

      1. CJ

        It’s happening in perpetuity here.

    3. JLM

      .Been in the real estate biz for more than four decades and I have never heard of a “tax write-off” for vacant space.A real estate P & L is just like any other business. Revenue – expenses = profits.Expenses include all operating expenses plus interest on the mortgage and depreciation.There is no unique “vacant space” expense. The landlord has to pay property taxes, maintain, service, connect utilities, insure vacant space as an operating expense of the entire project.Tenants typically reimburse the landlord for their prorata share of the operating expenses with the vacant space’s proration being paid for by the landlord.JLMwww.themusingsofthebigredca…

    4. Adam Sher

      At my former company, I managed our office building portfolio around the US. I retained a firm whose sole practice was appealing real estate taxes. We didn’t wait until our properties were vacant before appealing our taxes. In the absence of that, our real estate taxes would likely increase every year. Cook County is one of the worst offenders in this respect. The article you provided below says that people speculate that’s what landlords are doing. I doubt that is what landlords are systematically behaving that way. It runs counter to their best interests.

      1. JLM

        .Of course you did, because you were a ………………………. professional.JLMwww.themusingsofthebigredca…

    5. Matt A. Myers

      As I just commented here –… – there is also the impact of supply being lowered by there being less inventory available, so if they own multiple properties – it helps increase demand for their other properties and therefore what they can charge.

  13. PhilipSugar

    Here are things interesting things to me:1. How can you make first floor space desirable as living space? There must be good technology for this. I mean we all know people don’t like living on the first floor.2. In NYC could you make those nice enough to have for Airbnbs?3. Internet shopping is interesting. Like many parts of the internet there for moment in times money to be made as the intermediary. Now the question is right now Amazon makes it so convenient for the manufacturer to sell. Will that always be the case? I think it will be. In essence I think Amazon’s competitors are USPS, UPS, and FedEx.4. If you don’t have a USP Unique Selling Proposition you are screwed. This has always been the case, but the USP of being local has gone away. I was in Cabella’s and Costco yesterday and they were PACKED. Talk about expensive real estate.

    1. Salt Shaker

      I think in many respects Amazon is more like Costco than not, with margins tied to subscription rather than product.

      1. PhilipSugar

        Don’t disagree but I think Costco is more a a curator. Same for Aldi and Lidl.If you are someplace that wants to have tens of thousands of SKU’s it’s really hard unless you have the space, technology, and workforce, that Amazon does.

    2. LE

      1. How can you make first floor space desirable as living space? There must be good technology for this. I mean we all know people don’t like living on the first floor.If you had living where there is now retail how would that prevent people from whining about how their neighborhood doesn’t have retail anymore? [1] What is the difference between a vacant storefront and a storefront that is now an apartment? The difference is if it’s vacant it might be retail a year later. If it’s an apartment it’s an apartment for good.[1] That appears to be what Fred is saying here.

  14. panterosa,

    NY constitution obliges us to shelter to homeless, though being in shelter system delays getting housing. We need long term housing, the single most effective way to stop the downward spiral and promote the upward trend of those in need. This makes tremendous financial sense and will reduce costs. Anyone here looking at any public private partnership investements in this area?

  15. Salt Shaker

    In nyc for a week and certainly noticed the high vacancy rates all over the city. Commercial RE needs a reset, but large landlords inflate vacancy rates (and sf pricing) by holding out for better terms. They can carry the property and afford to take the hit, thereby artificially inflating pricing for everyone else. I was pleased to see a fair amount of activity all over the city. Bars, restaurants and a fair amount of retailers do seem to be thriving. That said, I do anecdotally believe the gap between haves and have nots wrt families is widening.

    1. LE

      They can carry the property and afford to take the hit, thereby artificially inflating pricing for everyone else. I was pleased to see a fair amount of activity all over the city.Yeah it’s called business. Although I am not sure if you are just reporting or you somehow think there is something wrong going on here.NYT is always writing articles about this type of thing. Along with running…surprise…ads for some of the most expensive real estate and luxury goods in the world. Who do you think is buying that property?

  16. Pointsandfigures is one way for CRE owners to lease out space that is small. I think we are in a massive shift. A lot of ground floor real estate is over taxed, over regulated. But, creating JIT retail in those spaces might make sense. What can be outsourced? Traditionally, it’s been printing and copying but what else?

  17. Jorge M. Torres

    My teenage goddaughter and godson don’t meet their friends at a suburban mall. They’d rather hangout with them online. I don’t know anyone who likes to go window shopping anymore. They’re rather meet for brunch or save money and do a group trip somewhere fancy. I think a big part of the story here is that people just don’t hang out in person nearly as much as they used to, and I suspect that’s impacting retail in a major way (along w the other factors already noted).

    1. Drew Meyers

      “They’d rather hangout with them online.””people just don’t hang out in person nearly as much as they used to”I really hope society can buck this trend. One of the most disturbing changes in behavior… I personally think screen addiction is one of the greatest risks to society long term.

  18. jason wright

    I read recently that Manhattan’s vacancy rate is 20%.

  19. JamesHRH

    Or, Boomers are old and don’t spend. Their kids are broke and waiting for their parents $.

  20. Felix Dashevsky

    Fred, I like the following post from Curbed NY on Canal Street woes, which are similar to what you are referring to. It shines a light on a more specific problem that is less about global retail trends and more about attempt to capture land value created by the otherwise vibrant NYC economy (I phrase it this way to push land value tax as the ideal solution to this particular problem!).

  21. Jared Anderson

    There should be some type of app or platform that would allow consumers to recommend or request specific types of tenants for vacant space. Imagine going up to a vacant storefront and allowing consumers to pick what they would like to see move into the space. On the flip-side is merchants having access to this data to better create and rollout concepts that consumers actually say they want.

  22. Pointsandfigures

    the other company doing cool stuff is If you think about the CRE transaction, it’s pretty silly. Shouldn’t the agent be fishing for clients that will actually fit in the neighborhood and have a chance to succeed? Shouldn’t the renter have some sort of probability based knowledge that they will succeed/fail in a particular location? Megalytics can do that-tell CRE agents what sort of clients to target and tell clients their chances of success in a particular location based on all kinds of proprietary data.

  23. Matt Kruza

    need to institue vacancy tax. Basic idea is that property tax is only 25-50% of tax generated by a piece of property. Employment taxes, sales taxes, and income tax from business in the property all occur when occupied.Real estate owners hate it (probably makes the property worth 5-10% less – so that 1,300 square foot place you mentioned instaed of being worth $1 million might be worth 900k-950k… shockingly they don’t like that ).Businesses and consumers benefit – lower real estate rents mean more business profits, more employment, and cheaper consumer prices. but an extra 10 dollars a month per every citizen doesn’t exactly have as much appeal to lawmakers elected by big donors is an article with a little info – mixed opinons, but I am firmly in support of a vacancy tax in general, the exact rates are highly dependent on circumstances and up for debate…

    1. LE

      need to institue vacancy tax.This is not only a bad idea it will never fly. Period. Now there may be ways to make something similar (discount on taxes if you are occupied) however that means they would have to raise taxes for everyone in order to discount. [1] Let’s see if that will ever happen.With your ‘vacancy’ tax that can easily be gamed anyway. Go ahead and try to define ‘occupied’ or not. What if I use it for storage and put a sign on the front but still advertise it as available. Is that ‘vacant’? Or now you are going to start to define specific terms of vacancy what it means to you ‘we know it when we see it’.A property owner can do whatever they want with the property subject to some restrictions and not having a tenant in there (but otherwise maintaining the property) is one of those things they can and should be allowed to do.I have one office that is vacant right now and I don’t even have the time to market it and find a tenant. If someone comes along fine and if I get a decent rent fine I will rent. But I am not going to rent to someone at any price just because. Note this isn’t in NYC either. The market here is not NYC. But the same principles apply. I paid X for the property and need a certain rent and tenant to make it work.[1] I did that at a condo complex when we had a special assessment. I said (after we came up with the number of the assessment) that we should raise it by x%. Then offer an ‘early pay discount’ to anyone that paid within Y days and if the payment was late there was a penalty of Z dollars. That worked very well. Over 85 percent of the owners paid early! That’s right early. We lost nothing. Was a very successful manipulation. Much less work than in any previous year. It was a brilliant idea actually I have to complement myself on that.In another complex the board wanted to pass an extra fee for anyone who rented out units rather than occupied them. I got that squashed with one letter saying that no it was the opposite. The investors were a benefit (in this building) otherwise the prices would drop and owner occupants would suffer. So they reversed course. Really quickly.

      1. Matt Kruza

        i believe dc already has a form of it??

        1. LE

          Well if they do why don’t you give a link?

      2. Matt Kruza

        And i agree your property would be worth less with the proposal… shockingly you oppose that (and i don’t blame you for opposing things against your interest!)but if the rent was 10% lower then you have to admit that would be better for the renter and the consumers.But i agree relatively unlikely to pass, but it’s an idea many good economic minds (economists and lay people like myself) have so wanted to share with fred and his readers.

        1. LE

          but if the rent was 10% lower then you have to admit that would be better for the renter and the consumers.Matt you haven’t even made an attempt to sell how that is better for the person who is the risk taker and owner of the property. How is something which is better for the ‘renter’ or the ‘consumer’ going to help me pay my bills and earn a living?but it’s an idea many good economic minds (economists and lay people like myself)Sure it’s a great idea for those without skin in the game!

          1. Adam Sher

            Amen. Skin in the game.

          2. Matt Kruza

            sorry for the slow response, but the risk taker would simply pay less for the property. They would buy for say $900k instead of a million, then make the same return (6-8 cap rate, or whatever applies to that market and class / type of property).The only real loser would be the current risk takers – the current property owners. All future buyers would factor in the new rules which would result in lower rents.And while some would claim this is unfair, clearly for existing high income home owners (with high property taxes) they hate / lose money on the SALT $10k limit of reforms from the recent tax reform. Tax reform happens all the time, which hurts property values, one of the largest examples being the accelerated depreciation of real estate in I believe 1986 under reagan.Just general point is that risk takers would in the long run make similar returns, but would result in a permanent shift down in rents due to less ability to manipulate / reduce the supply of available rental space.Lastly, its similar to zoning regulations and incentives. I am pretty sure no one questions that in many instances zoning regulations (maybe most I would argue) increase the value of existing property owners. Obviously they don’t want that to change. Obviously if they were changed and the price of real estate went down, the new owner could still get good returns, but the existing owner would suffer. Which is fine, because they are benefitting from a socially non-optimal policy that artificially increases wealth of the land / building owner, who are vastly disproprotionately high income individuals who don’t need unequitable laws supporting their wealth

        2. Adam Sher

          How would a vacancy tax lower rents? Conversely, I would think rents would increase because the cost of the deal increases by the increase of the tax. Or, if rents do not increase, then cap rates need to decrease. In the later case, you need a future buyer who is willing to accept less return for the same risk.Most landlords are not purposefully not earning cashflow in order to land a big tenant. Maybe over a 3-6 period, it’s worth trying the market. Instead, landlords often report that they are waiting for a large, credit tenant because stating that sounds more prudent than to state they cannot rent the space.Commercial real estate is too competitive for most landlords to sit on a lot of vacancies. And the issue of foreigners parking money in a very few number of US markets is not an issue that affects the rest of us. If you look at local developers (e.g. those who speculatively build single-family homes), the margins are a little less thin, and it is harder to get non-recourse leverage. Landlords bare the upfront cost of base building and TI and rely on tenants’ credit to get paid enough to generate a profit. You cannot ignore credit risk. It would be stupid to build-out space just to fill it with the first group of tenants who want it.If a lot of Economists are advocating for a policy, I’d bet against them. It’s easy to implement policy when you are divorced from the consequences of that policy.

    2. JLM

      .One of the rights of any property owner is to do with it what they want. To suggest that an owner should be penalized for being lazy, incompetent, stupid, or petulant is silly. Those are behaviors.The market vacancy is a function of supply and demand. There is no direct connection amongst payroll taxes, sales taxes, and income taxes and the magnitude of vacancy presented to the market.Much of market vacancy cannot be filled regardless of how it is priced.Waco, Tx and Austin, Tx were the exact size in 1951. Waco is, essentially, the same size today. Austin is 1.6MM people (greater SMSA).There is vacant space in Waco which has never been occupied since 1951.Lower real estate rents do NOT mean more business profits. Usually when you are in a lower rent environment, you are also in a less vigorous economic environment – Waco v Austin.JLMwww.themusingsofthebigredca…

      1. Matt A. Myers

        Not sure if there’s disingenuity in this comment – as it’s something I imagine you’d be familiar with.Landlords can – and would do it if their city laws are structured this way – use vacant rental properties as tax write-offs, thereby reducing the supply, thereby increasing the cost because of demand in desirable areas – which is especially beneficial for them to do if they own a bunch of rental properties.This is prominent in a city I spent ~20 years in with a population of 120k, though with a bustling downtown because of its university and other educational and federal agencies that have function here. There are 3 main landlords that own most of the downtown core (mostly old money, inherited), 2 others who own a significant portion. There are always lots of vacant retail spaces – certainly not due to a lack of demand. They also charge as close to “big city” rents as possible, because they’ve squashed the speed of development allowed by influencing city council to put policy into place over the decades that benefits them, including placing/helping position someone landlord-friendly in the higher levels of government. It’s pretty fascinating, has been a great lesson through observation.This is all part of what I call the Landlord Rental Complex. Landlords will buy up and convert properties to rental, and then over time increase rents as much as they can; cities have had to put policy into place for residential to only allow a small allowable annual increase to reduce speed of gentrification – though newly Airbnb (et al) and lack of adequate investigation and enforcement is not doing a good job of countering this. Likewise, rents in a core of a city then increase (or anywhere that it’s desirable to live) and then developers can make profit by building further away because it’s cheaper for people to live outside of where they’d prefer, however then there’s the time cost of transit added to the person.Re: “One of the rights of any property owner is to do with it what they want. ” – Without even needing to question this, we can say that we could implement policy where, as a society, we want places that are near us and usable space to not be vacant, and then therefore not allow vacant spaces to be a tax write-off.I’d be really curious to hear your take on this if you’ve paid attention to or noticed these patterns yourself.

  24. David Albrecht

    My wife is an architect in SF. They know oversupply of retail is a problem but it’s still sometimes required by zoning and other local-control ordinances. In new buildings, they’re trying to make retail space that’s easily convertible to restaurants, since dining out (esp fast casual) has grown so much. It’s harder than it sounds: restaurants have intense HVAC / electrical / plumbing requirements that retail doesn’t.It’s a hard problem. It’s easy to forget among us tech people, buildings are designed to last 50-100 years. Things are going to change over a building’s lifetime.

  25. David Albrecht

    The adjustment is going to take longer in California — another great example of the unintended consequences of Prop 13.There is a building down the street from me here in Oakland that used to be a music store. Probably 10K square feet, large showroom with a basement and mezzanine. Vacant since the store moved out 2-3 years ago. My wife and I tried to buy it so we could redevelop it into an office, but the owner refused to sell. Their valuation is way off the mark and thus, there it’s sat for another year or two.In most markets, property taxes would nudge the owners toward putting the building toward productive use, either rental, redevelopment, or sale. Here in California, Prop 13 means the parcel is never re-assessed to market value, so it continues to be taxed — potentially for decades — at a valuation that’s 20-30 years out of date. Policy like this makes adjustments take much longer because owners have such a strong disincentive against selling.

  26. Kirsten Lambertsen

    When I lived in the city, in the early ’90’s, I was dead poor. My favorite thing to do on a free afternoon was to go to St Mark’s Place. It was all affordable, and it was all *ahead of the trend curve.* The trends weren’t being made in Soho. They were being made on St Mark’s Place.There were other parts of town where similar adventures could be had by ‘starving’ creators like me. Those are disappearing.I worry when I walk around Manhattan now, even though I love it just as much as I always have. I think it risks becoming merely a playground for the idle rich. The interesting rich people (‘patrons’) want to be near interesting ‘starving’ creators. There’s less and less for patrons to discover in NYC now because starving creators can’t find a way to make it work any more.

    1. jason wright

      “The interesting rich people (‘patrons’) want to be near interesting ‘starving’ creators.”- a modern definition of the sociopathic elite?

      1. DJL

        Isn’t that the modern Democrat Party? Financed at the top by elite ‘patrons’ who need the votes of the growing list of disenfranchised ‘starving’. They have admittedly thrown out the middle class as their target market. It would explain why the great metropolis areas like DC and NYC lean a certain direction.

        1. jason wright

          Trumping Trump?

          1. DJL


          2. jason wright

            Yes, those metropolitan Liberal elites, completely out of touch with the general mass of the population. Heads in the clouds denial of reality. They throw up their hands in horror at the arrival of Trump, and seem to fail to connect the dots that rationally explain his rise to power. They are intellectually blind in this regard.

    2. LE

      I don’t agree that that is a big problem in the world myself. That ‘creators’ are disadvantaged as a result of rising rents and costs in NYC vs. the vast majority of lower class (and for that middle class) people that are priced out of NYC.I grew up in and around Old City Philly which was the wholesale district (more or less like the Lower East Side in NYC). I have and remember when it was just inhabited by artists. I have pictures I took of the artists on rooftops as a kid. At the time the only people who lived in Old City were artists and they were regarded as the crazies. Now of course it’s an expensive area for sure. I owned an art gallery on a street in Old City for many years. The artists made out fine. They moved to other areas of the city and then moved from those areas when the Starbucks arrived.

      1. Kirsten Lambertsen

        I think both can be true: the city is chasing away its ‘starving’ creator class *and* anyone who isn’t wealthy, period.We can talk about what has always made NYC a unique place to live without erasing other not-wealthy communities’ experience.In fact, I’d say the flight of the creator class contributes to the loss of the working and mom-n-pop class. It’s people like me (back then) who patronized the $2 falafel stands, the $1 pizza slice joints, bodegas, and other low rent businesses that made NYC so diverse. A thriving ‘starving’ creator class feeds and is part of an ecosystem that interacts with it (a little like the thriving ‘starving’ startup communities I’ve seen).It’s true that creators will go somewhere else, and it’s not the end of the world. But the ecosystem that springs up around a creator community will go with it. And that’s NYC’s loss on multiple levels.

      2. Adam Sher

        How’s your Philly accent holding up?

        1. LE

          Had that surgically removed. Was an inpatient procedure at HUP.

          1. Adam Sher

            When I met my wife in college, her Philly accent was brutal. Attending school outside of the state really moderated that. Count that in the reasons to attend school away from home.

          2. Lawrence Brass


    3. Jorge M. Torres

      St. Marks was everything during that time And shopping for Kangols and Docs on W. 8th. The good ‘ol days…

      1. Kirsten Lambertsen

        Yes! West 8th St!I also really miss old Theater Row. Produced a bunch of low-budget shows in those various spaces, especially the Ishtar. Used to bump into the various Naked Angels there.

  27. William Mougayar

    It is so challenging nowadays for unique and original stores to succeed. If you don’t have a brand, the challenges are high, so that leaves physical retail to mostly big brands, but there are so many of them to go around.

    1. Drew Meyers

      Of course, distribution is more expensive today than it’s been in the past too given the dominance, and hostility, of tech titans (…. But, in some senses, I think it’s easier to create a brand now than it was previously (up until a point)?

      1. William Mougayar

        Why is it easier?

        1. Drew Meyers

          Because of social to drive organic word of mouth, granularity of ad targeting, and consumers willingness to seek out and trust unknown brands without years of time in business.DNBV are a trend I’m excited to see continue to play out:

  28. hypermark

    There is a saying. Brick and mortar retail is not dead, but MEDIOCRE retail IS dead or dying. What that means is that retail concepts that can be de-localized, digitized and/or commoditized will be, and so a whole lot of retail concepts and categories that were protected pre-Amazon, pre-iPhone are exposed and vulnerable.The irony there is that once upon a time, the mom and pop retailer differentiated on personal service and convenience. But, then Main Street got outflanked by Big Box operators who competed principally on inventory and price, which had a homogenizing effect.That, of course, became a losing proposition in the face of Amazon and show-rooming, so retail has to reinvent itself, and many retailers are. But, there will be plenty of carnage since per capita retail square footage in the US is about 2X that of Australia and 5X that of UK.

  29. nicholas russell

    Here’s a few stats for the UK based on an FT article this morning:…On a broad view, it looks like all the growth in retail sales (at least in the UK) are coming from internet commerce. Which is itself a misnomer, as it’s probably likely already omni-channel. Thus our first confound, which is accurately measuring what we mean when we say “retail sales”.The vacancy problem remains pronounced, and will only increase. I have begun to wonder if one of the motivations for that vacancy is protecting the sales of remaining retailers.

  30. LE

    Is it the result of so much commerce moving online that retailers can’t make a profit selling out of a store anymore? Is it the result of rents being too high and when landlords bring them down, we will see the spaces fill up again? Is it a combination of both? And can technology help address this problem?The angle that I can think of is an entity that is able to guarantee a small tenant as if they are a large tenant. So the landlord has the confidence that they are dealing with the backing of a triple a rated tenant (or whatever you want to call it). Not some small fish business with just hopes and only nominal financial wherewithal.So perhaps a crowd funding platform (or other entity) that backs a retail store such that the landlord is willing to give it attractive terms and pay attention to them.

    1. Drew Meyers

      You mean a crowdfunding event as a qualification trigger for tenants to get better terms, or get a retail space at all?

      1. LE

        Not primarily. More a way for a crowd to back an idea thereby allowing the entity that gathers the crowd to be able to say to a landlord ‘this tenant is blessed’. And then to use dollars raised to backup that promise, but only if needed. See below:So if $X was raised the crowdfund platform holds that in escrow. And if the tenant fails they pay that money as liquidated damages to the landlord in a pre-determined amount (not open ended). And if it is not needed it is either rolled over to other ideas/tenants or refunded whatever the crowdfunder desires.Actually this is a pretty good idea for someone to do I must say.Curious what JLM thinks of this. It’s similar to having a guarantor but with added benefits and differences. Plus the landlord already knows that the crowd fund platform (in theory) has vetted the tenant and perhaps the idea so right off the bat they have an edge with that branding.

  31. JLM

    .Before anybody gets strangled in their underwear, know that retail real estate in a major urban environment like NYC is one of the most finely analyzed and detailed investment arenas on the planet.Real estate pros take a first look at publications like this:http://www.cushmanwakefield…Look at the Cushman Wakefield Q2-2018 retail report which tracks the trends on retail occupancy and rents. This report would actually be considered a very broad view.A real pro would commission much more detailed reports than this. Top fllght firms have their own research capabilities. I used to have much more detailed in house capabilities than the CW report. Those detailed reports would track the impending maturities of existing leases giving one a look into the future.This is the kind of material I routinely used over more than a quarter of a century in the business. With the passage of time, the info just keeps getting better and better.Take a look at the difference between the rents in 5th Ave between 49th-60th and the rents in the Union Square area. As you can see, they differ greatly. Also, the vacancy rates differ greatly.At $421/SF in the Union Square area, a retailer would have to be grossing approximately $6,014/SF annually or $500/SF monthly. This assumes a lease cost of 7% of gross revenue which is the “bright line” at which a retailer can make money and a landlord can show a 10% ROI.A little space like the one Freddie noted is an oddity. It has a lot of frontage, but no real size. The downstairs space will never generate revenue and is doomed to be used as storage or some other non-revenue generating space. Little spaces like this don’t really impact the numbers.The bottom line is that the NYC retail market has a couple of bright spots and a few places which are soft.A healthy market is 10% vacant with rents rising. A hot market is 5% vacant with rents spiking. A soft market is 20% vacant with rents flat or declining. A disaster is 30% vacancy with rents plummeting.JLMwww.themusingsofthebigredca…

    1. LE

      Interesting and in support of you point ‘well oiled machine’ here is the man behind the company (Chairman) that owns that property from a 2011 NYT article:…He worked for Harry Helmsley.The rest of the team are old timers who don’t have enough non gray hair to fill one head:…That said they were formed in the year 2000 and with respect to NYC at least they were able to ride the wave since then of increasing values.The rest of the country does not work like NYC does (other than a few select places of which Austin may be one) and as such similar things don’t happen or at least not like they do in the de facto capital of the world, NYC.To all those that complain about NYC and this happening that is what you get when you are in a place like that you have to take the downside and the upside.

    2. sigmaalgebra

      Wow — Retail Real Estate 101!

  32. jason wright

    Bleecker Street. Is that an old Dutch name?

  33. awaldstein

    I agree with the two problems, though at least visibly homelessness here compared to the West Side of LA feels small if not more hidden.I don’t have the answers but with family in the restaurant business, I know first hand that all the costs/issues around retail is stacked against innovation and experimentation.And has someone who has had retail outlets here, whatever the fix is, cosmetic changes won’t cut it. Popups as the aftereffect of empty stores is the positive outcome of a horrid situation though and every consumer brand product company I’ve been involved with has used them.Some of my best discussions around this topic has come on GothamGal’s blog for certain. A maven on this topic.

  34. John Stuart DeWees

    re …empty NYC retail space…don’t forget the fantasy taxes due on empty spaces that the city collects regardless of use. Taxes are based on what the ‘city’ thinks your rent roll should be. The fantasy tax can create a financial structural issue for repurposing. Why are there so few bodegas and small non chain neighborhood specialty offerings? one reason (there are many not addressed here) are RE taxes.

  35. Chris Phenner

    This was the topic of a Special Section in The Sunday New York Times, a month ago.…“When you walk the streets, you see vacancies on every block in all five boroughs, rich or poor areas — even on Madison Avenue, where you used to have to fight to get space,” said Faith Hope Consolo, head of retail leasing for Douglas Elliman Real Estate, who said the increase in storefront vacancies in New York City had created “the most challenging retail landscape in my 25 years in real estate.”A survey conducted by Douglas Elliman found that about 20 percent of all retail space in Manhattan is currently vacant, she said, compared with roughly 7 percent in 2016.While a commercial crisis might more likely be associated with periods of economic distress, this one comes during an era of soaring prosperity, in a city teeming with tourism and booming with development.That has aggravated the vacancy problem by producing a glut of new commercial real estate.”[end of pasted snippet]

  36. jseliger

    I’ve read claims that taxation on empty retail space is different from taxation on used retail space, and that tax policy can implicitly encourage landlords to “hold out” for higher rents. That in turn has led to suggestions for increasing tax rates on empty retail spaces after some period of time—e.g., a jump in rates after six months, with small monthly jumps thereafter, such that eventually landlords will be encouraged to rent.I wish I had a good citation to a better description of this idea, but alas I do not.

  37. george

    I’m sure there are several contributing factors for the retail sectors decline, but one formula seems pretty successful – stores that are remain unique, provide great personal experience and have a real sense of cultural purpose.If I were to cite a larger vertical brand, Patagonia appears to be winning…grass roots appeal.

  38. Anon3939

    What about an automated business-model generator that a homeless person can take with a complete, simple template (and backing microcredit) and realize as a viable, useful business? This seems like an honorable, honest way out should someone want to dig themselves out of poverty.

  39. paramendra

    Some of that space could be used for the PodShare idea. Bunk beds that go for $20 per night on night to night, and cheaper monthly rates.

  40. Terry J Leach

    How Manhattan Became a Rich Ghost TownNew York’s empty storefronts are a dark omen for the future of cities.