Comptroller Releases Retail Vacancy Report in Response to City Planning’s Report

NYC Comptroller Scott Stringer. Image credit: Office of the New York City Comptroller

Comptroller’s office analyzes other sources of data, concluding retail vacancy is citywide problem. On September 25, 2019, New York City Comptroller Scott M. Stringer released a report regarding New York City’s retail vacancy crisis. Comptroller Stringer’s report is intended to fill a void in unexplored data from City Planning’s August 8, 2019, analysis of the same topic.

City Planning’s analysis reached the conclusion that “storefront vacancy may not be a citywide problem.” Rather, retail vacancies can result from a myriad of factors including high rents, a rent bubble promoting vacancies, and zoning restrictions specific to each neighborhood. The comptroller’s report is more critical of the state of retail vacancies throughout the city as a whole. The comptroller’s report dives into Department of Finance data, the changing real estate industry and the city’s growing population to conclude there is a citywide problem.  Click here to read Cityland’s prior coverage of City Planning’s storefront vacancy report.

The additional sources of data analyzed in the Comptroller’s report were meant to supplement the sources of data City Planning used in their report. Like City Planning’s report, the Comptroller’s report analyzed 24 different neighborhoods throughout the city. Those neighborhoods were selected based on past media coverage and because many of the neighborhoods were subject to City Planning’s report. The Comptroller’s report used Department of Finance’s property tax filings from 2007 to 2017 to measure vacant retail square footage and vacancy rates for the selected neighborhoods and for the City as a whole. The Comptroller’s report also analyzed commercial leasing data such as average retail rent per occupied square foot and net effective rents on new retail from 2013 to the present. The Comptroller’s report then analyzed how retail real estate is growing and changing based on employment, wages and establishment data from the U.S. Bureau of Economic Analysis and from merchant data from MasterCard. Lastly, the report looked at data from the New York State Liquor Authority and the Department of Buildings to examine how regulatory hurdles can impede turnover of vacant retail space.

The report shows that the citywide retail vacancy rate increased to from 4.0 percent to 5.8 percent from 2007 to 2017. The rate increased in all five boroughs, especially in Staten Island.  Vacant retail space has increased by 5.2 million square feet over the last decade and vacancies are at their highest in the outer borough neighborhoods. The report ultimately draws three conclusions and makes three recommendations for addressing the vacancy crisis.

Conclusions

1. Online Shopping

Stringer’s first conclusion is that online shopping is the driving force behind the change in retail real estate. Stringer’s report points to the success of Amazon during the same years as correlation between the two statistics. In 2007, Amazon.com had $14 billion in sales and 17,000 employees but by 2017 the company reported $177 billion in sales and over half a million employees. Instead of traditional brick and mortar retail, the study points out that retail space is now being used for restaurants, bars and personal services. The number of personal service establishments rose by nearly 50 percent and the establishment of bars and restaurants rose by 65 percent between 2007 and 2017. The number of merchants engaged in specialty foods, laundry services, grocery stores and drug stores have all shown the most sizable increases since 2012.

2. Commercial Rents

The second conclusion is simply that rising commercial rents in New York City have contributed to rising vacancy rates. The report found that between 2007 and 2017, retail rents rose on average from $42 per square foot to $51 per square foot, an increase of nearly 22 percent. The study points out that the rise in rents is not consistent throughout the city.  In certain parts of Manhattan, like SoHo, rents doubled where rents in the Financial District generally decreased. This analysis also looked at property taxes paid by retail tenants. The report points out that the property taxes account for nearly 23 percent of the total rents paid. Ten years earlier, the total property tax paid was only 20 percent of total rents paid. Stringer states that while property taxes are commonly a landlord responsibility, many commercial leases now contract the tenants to pay some or all of the property taxes. The report suggests the increase in property tax payments is proportional to increased property values, not an increase in triple net leases.

3. Regulatory Hurdles

The final conclusion drawn in the report is that regulatory burdens are often onerous hurdles for New York City store-owners. The report cites landmark status, community board approvals and the permit and approval processes as a contributor to vacancies. Specifically, the report points to Department of Building’s permit process and State Liquor Authority’s liquor license approval processes. The report states the average number of days it takes to get a Building’s permit is reaching more than 30 days in the outer boroughs and the time to get a liquor license approval increased from about 50 days to 75 days. The comptroller’s report attributes the difficulty of transitioning from one business to another, as a key consideration in the continued vacancy rate increases.

Recommendations

Stringer’s three recommendations address each of the conclusions:

First, the City should provide tax incentives or tax credits for independent retailers. Stringer purports that the tax incentives will help lower the costs of retail space in neighborhoods with persistently high vacancy rates.

Second, to address administrative confusion, he suggests the creation of a multi-agency task force that can be used as a single point-of-contact for new businesses. The task force could help businesses work through the city regulations. Stringer also recommends waiving permit and inspection fees for businesses taking over spaces that have been vacant for a specified period of time. It appears to be Stringer’s belief that transparency and catalyzing the permit process will reduce the time it takes to transition spaces into new businesses, ultimately reducing vacancies citywide.

Lastly, Stringer calls for the city to consider the impact of retail in any major development proposal or rezoning. To accomplish this, he recommends a detailed analysis of retail demand in the area and intervention to ensure the right amounts and types of retail are incorporated in the neighborhood.

Cityland reached out to City Planning for a comment on Stringer’s report. Representatives from the agency declined to comment.

To read the Comptroller’s report in its entirety click here.

To read City Planning’s report in its entirety click here.

By: Jason Rogovich (Jason Rogovich is the CityLaw Fellow and New York Law School Graduate, Class of 2019)