A slightly different version of this article appeared as a Perspectives Column in the May 15, 2009 issue of the Downtown Idea Exchange
Far too often, concern about the number of empty storefronts in a downtown reaches distorted and needlessly injurious proportions. This was true before our current recession and now it threatens to become an even more serious problem. It’s critical for downtown leaders to view the vacancy rate issue from a realistic perspective.
For example, a few years ago, when I was managing a district, the mayor and I often would go around the block about our vacancies. My protestations that our vacancy rate of 2.6% was very low, and one that most other districts would love to have, were dismissed – the mayor wanted a zero vacancy rate. I tried to explain that a zero rate actually would be unhealthy for the district because it would keep out new business blood and thus make the district stale, perhaps even ossified. This argument, too, gained no traction. And this mayor is a very bright and likeable guy.
Today, many downtown leaders and local politicians are seeing growing vacancies as omens of doom. In past recessions, DANTH Inc. had projects in downtowns where the vacancy rates were in the 18% to 20% range. Looking just at the vacancy numbers is deceiving. High numbers are not a death warrant:
- Within a year, the downtown with the 20% rate recruited several trophy retailers and substantially reduced the number of vacancies. A few years later it was being cited as a veritable model of downtown revitalization.
- Similarly, the other downtown reduced its rate to 12% in less than a year and to 6% after 18 months. Today it reports having few vacancies.
A recent canvass of 14 downtowns showed four with vacancy rates of 10% or higher. But:
- Two of those downtowns had actually reduced their vacancy rates substantially during 2008 from 2007: one dropped to 11.2% from 14.1% and the other to 11% from 15%.
- Another of the canvassed downtowns reported a 13.3% vacancy rate. On the other hand, it still had at least six new stores open, some of which promise to be strong. Moreover, a supermarket is doubling its size, a new nursing home with new ground floor retail space is about to be built, 14 residential units are being added to the floor above an existing 15,000-s.f. retail space, and McDonald’s will be renovating a 100-plus-foot façade on the main drag.
- Most of the canvassed downtowns reported new shops were opening, even when the district managers felt the vacancy rates were much higher than they would like.
In the vast majority of downtowns a very significant proportion of the storefronts normally are occupied by marginal operations. Very often, marginal businesses are badly managed and do little to foster a positive image of the district. In a recession marginal firms have a high probability of failing. Some marginal firms are not small – many national retail chains are now out of business because mismanagement put them on the financial brink and the recession pushed them over.
The vacancies that result from this economic pruning can – and I would argue should – be viewed as opportunities. In tough times like these, there still is “creative destruction” and many district managers are reporting that some attractive new businesses are opening. If these firms survive the recession, they probably will really thrive when the economy rebounds.
Many would argue that a district is damaged more by a poor business operator who cannot garner customer support than by a vacant storefront. Let us not take our admiration of small business people to the point where we canonize all of them. By definition, half of the small business operators in this country are below average. The challenge in this recession is to fill the downtown vacancies with as many above average operators as we can. The quality of the existing tenants is more important than the quantity of empty stores!
Now is the time for downtowns to survive and reposition. Consequently, there are lots of better barometers than vacancies for judging how a downtown is doing during our current economic troubles:
• Have shops and eateries adapted to the new market realities so their owners can still make a satisfactory living?
• Are quality businesses opening?
• Are store facades being maintained and improved?
• Is land being quietly assembled for development when the economy rebounds? Better still, are projects actually going into construction?
• Are improvements being done to make the downtown a more convenient place to visit?
• Are investments being made to create terrific public spaces?
N. David Milder
