Part 2 of the A Closer Look at Some Strategic Challenges Generated by the New Normal for Our Downtowns Series of Articles
By N. David Milder
There are a number of issues that involve questions about who will visit, live, work and play in our downtowns and how all stakeholders – be they those who live, work and play there or those who own properties and businesses – can share in their successes. The term “equity” seems to fit all of these issues. Their emergence has been relatively recent, and their full dimensions are probably yet to be grasped. As a result, most are not on the radar screens of many downtown leaders, save in those cities where the problems have already become very acute and/or nationally visible, e.g., affordable housing in San Francisco and the entire Bay region.
The core equity issues are essentially about what our values and preferences are and how they will be applied to many of the component parts of these successful downtowns. Decades ago, at their nadir, downtowns had a different set of users and, often, different stakeholders. Strong concerns about equity were not really salient since there were so few goodies to distribute and so few people who wanted either a psychological or legal stake in these districts. These days, that has all changed. The equity issues are generated by downtown and community successes, sometimes huge ones, not their failures!
Way back when, it may have been from one of Jane Jacobs’s books, I learned two axioms about downtowns that have stayed with me ever since:
- A downtown needs its community’s residents to take psychological ownership of it. It must become “my downtown” in their guts. When that happens, they will not only use it, but also politically defend it, and support efforts to improve it. Psychologically, they become stakeholders.
- A downtown should be everyone’s place. It should have attractions suitable for large swathes of the community. It also should be the community’s central gathering place. Anyone acting in an orderly manner should be welcome.
During the decades when downtowns were in decline, it seemed as if few people within their communities wanted to take psychological possession of them. Today’s successful downtowns show a marked ability to attract many more people, many of whom are affluent and well-educated, to live, work and play in them. In some, where the median price of a residential unit exceeds $1m and where the price of a ticket to a show or ballgame can exceed $1,000 in secondary markets, many local residents may wonder what’s there in the downtown for them?
Who Can Afford to Live Downtown?
Downtown experts agree that more residents in the downtown and in neighborhoods within reasonable walking distances of it have been the strongest engine for downtown revitalization. Yet, more housing in those places is proving to be a double-edged sword and concerns about middle income and “workforce housing” are popping up across the nation. The situation in San Francisco has attracted a lot of national attention and demonstrates many aspects of this problem. Nearby Silicon Valley has had a famed economic success and many of its relatively well-paid workers seek housing in San Francisco. For example, Google-owned buses haul hordes of them to and fro daily. The result has been a very expensive housing market in the entire Bay area. It’s become very difficult for these relatively affluent workers to find affordable housing and those pressures are also impacting other types of workers. One response is to accept smaller and/or unusual types of dwellings. Here’s a recent headline in the New York Times: “Dorm Living for Professionals Comes to San Francisco” (1). The article goes on to detail that: “In search of reasonable rent, the middle-class backbone of San Francisco — maître d’s, teachers, bookstore managers, lounge musicians, copywriters and merchandise planners — are engaging in an unusual experiment in communal living: They are moving into dorms.”
Dorms and other “co-living” arrangements are just one solution path San Franciscans have followed to cope with their region’s skyrocketing housing costs. For example, Business Insider even headlined that: “A 23-year-old Google employee lives in a truck in the company’s parking lot and saves 90% of his income” (2).
A Cargo Container Converted into a Small House in San Franciso.
The Tiny House movement has even penetrated the San Francisco area as evidenced by the photo above taken from an article in Business Insider (3). In this instance, a cargo shipping container was converted into the wee home. Some more affluent San Franciscans have spent $1m+ to purchase and renovate “earthquake shacks,” or are living on boats in the bay. Still others are squeezing together with a large number of roommates into an apartment or house (4).
High housing costs are not confined to San Francisco. As can be seen in the above table, in all 10 of these highly successful major cities, the ratio of median home prices to median household incomes exceed the 5.1 level deemed to indicate serious unaffordability.
An important question: are the housing costs in smaller communities than our major cities also skyrocketing and having adverse impacts? Probably yes, if they are located in a region, such as the San Francisco Bay Area, where the whole area is thriving economically. For example, the communities where the Jobs, Zuckerbergs, Pages, and Ellisons live are small and hyper expensive. In less economically robust regions, one might expect a more complicated picture. My hypothesis is that higher housing prices are an inevitable result of a downtown and its community becoming successful, desirable places to live, work and play. So, where that has happened, the prices will very likely be higher. For instance, in districts that have recently experienced a significant revitalization that was propelled by mix-use, residential anchored projects. This has happened in a number of suburban communities around our major cities, especially those served by commuter rail. Otherwise, in smaller towns and cities, housing prices probably have not skyrocketed. For some smaller towns, their lower housing costs when combined with strong quality-of-life assets, and decent broadband and transportation access, might give them a meaningful competitive edge in attracting new residents and businesses.
“Micro-living,” i.e. living in units of 300 to 400 SF or less is a growing phenomenon in cities across the globe where their economic success has pushed housing prices well beyond what middle-income and even upper-middle-income persons/households can afford. In the U.S. they can be found in many of our largest cities — e.g., Boston, Chicago, and NYC – but especially in cities such as Atlanta, Cincinnati, Denver, Pittsburgh, Seattle, St. Louis and Washington D.C., where the share of single person households exceeds 40%. The mini apartments also are not unusual in Tokyo and many European cities (5).
To provide some perspective on these 300 SF to 400 SF units, consider that in the recent past many of their occupants would have rented studio apartments. Their average size in NYC, San Francisco, and Oakland are 550, SF 514 SF and 531 SF respectively. The micro-living units are 20%+ to 40%+ smaller than the studios. Also, consider that in the 20 most populous metro areas there is a distinct trend toward smaller units – though all still average above 854 SF (see the above table). The decreases in size have been smallest is in the metro area that have very high costs and low costs and highest in the high cost and moderate cost markets.
The small units, such as those in dorm or co-living buildings, often have desirable social/communal advantages that attract their inhabitants. Whether a true equity issue exists for these residents under these conditions depends on whether the inhabitants really want to live in such units or are occupying them because they are the best of the bad options available to them.
This discussion would also be more informed if there was some research establishing that humans need abodes that have XYZ square feet of living space. My memory says that HUD somewhere at some time established that dwellings were overcrowded if a unit’s occupants have less than 188 SF each. I have not found any research that supports a number like that. Moreover, it is highly probable that the personal space needs vary culturally. For example, NYC subways certainly get crowded, but I doubt that their riders would accpt either the level of crowdedness found in the Tokyo subways or their use of car packers to assure that the subway cars are maximally stuffed with riders. Moreover, there are many people in neighborhoods in the Borough of Queens in NYC, such Kew Gardens, Forest Hills, Bayside, who use the l far more expensive Long Island Rail Road rather than experiencing the crowded subways.
Many San Franciscans and residents of other high price communities have responded to the housing equity issue with their feet. A recent report notes that: “San Francisco lost more residents than any other city in the US in the last quarter of 2017…. San Francisco lost net 15,489 residents; about 24% more than the next-highest loser on the list, New York City” (6). This behavior pattern probably results in area firms losing a lot of talented employees. Of course, very high housing prices probably will also dissuade a significant number of talented people from taking jobs located in a community.
Tourists and Tight Housing Markets. City leaders, their economic development officials and local business operators often brag about how many tourists and second homeowners they have and all the revenues and jobs that means for their local economies. However, the residents of many of these communities may tell a different story. They may note that the retail developed for tourist shoppers really does not provide the types of merchandise and services they need or want and often creates seasonal traffic nightmares on local streets. In many communities, large and small, tourists also have impacted negatively on the housing market from the perspective of the needs of local residents.
Moses Gates, in a study by Regional Plan Association (RPA), noted that: “54,764 apartments in New York City … are vacant, according to the 2014 Housing and Vacancy Survey – but not really. These are apartments used for ‘seasonal, occasional, or recreational use’ – i.e., pieds-à-terre or second homes” (7). He went on to state that:
“We also need to better leverage our housing inventory, especially in places where land is scarce and building new homes is difficult. One way to do that is through policies like a tax surcharge on second homes in the New York City (or a pied-à-terre tax) designed to get mostly unused apartments back on the housing market.”
It should also be noted that strong suspicions have been raised about many of these pieds-à-terre in some of our biggest and most tourist-popular cities (e.g., NYC, Miami, etc.) being money-laundering operations for their wealthy and unknown foreign owners.
Many of these units are vacant for most of the year. They thus do not contribute the pedestrian traffic to the sidewalks below nor the expenditures in the city’s shops, restaurants and entertainment venues that one might reasonably expect – nor the sales taxes on those expenditures.
Are these second homeowners to be treated differently from a downtown’s normal stakeholders? Laws probably protect them in many ways, but I am certain that many local residents would say there is something unjust stirring here that must be fixed.
Airbnb has seemed to be looking for trouble in a host of cities, quickly getting into conflict with city governments because of its alleged flaunting of local laws and putative negative impacts on the availability of affordable housing. As a recent study published in the APA Journal noted, Airbnb had been criticized for enabling:
“…tourism accommodations to penetrate residential neighborhoods, which creates conflicts between visitors and residents, displacing permanent accommodations in high-demand cities and exacerbating affordability pressures for low-income groups (8).
Governments, at all levels, have for decades often mounted programs to cope with the affordable housing issue, though they almost always targeted low-income and impoverished households. Also, the units produced by those programs usually were placed in poor neighborhoods or in those very out of the way, e.g. Far Rockaway here in NYC. The downtown housing equity issue differs in that the targeted population is middle or even upper-middle-income households and that the units produced for them should be at least within a very reasonable travel time of the downtown. It would also probably be a good idea to have representatives of these residents and their employers extensively involved in the development of the needed housing units.
Downtown Success Encourages Landlords to Ask Independent Retailers for Unaffordable Rents
This problem is made more complicated by the fact that to properly understand it one must break it down analytically into three constituent parts: fairness to the merchants, impacts on vacancies, and the impacts of the loss of popular, able merchants. In many discussions of the affordable retail rent problem, things get murky as attention quickly shifts from one of these sub-issues to another. My objective here is not to provide definitive solutions, but to help illuminate the problem and to suggest some solution paths that may be worth exploring.
The Problem Is Not New. Unaffordable retail rents are an issue that long predates the Great Recession. For example, back in the late 1970s, when I surveyed street-level merchants in Charlotte’s CBD about how they were impacted by an off-street, internal shopping network that was created by overstreet bridges connecting a number of new buildings, they replied that it took traffic from the sidewalks and led to hard to afford rent increases. In the two districts I managed, I never met a small merchant who did not have something negative to say about their rent increases.
Generally, when downtowns or neighborhoods become observably successful, they not only attract retail chains, but also tend to attract many other types of businesses, such as personal, professional and financial service operations. A very high percentage of these operations can afford higher retail rents than the average independent retailer. Some, such as the banks, are willing and able to spend a lot more on rents than even the well-heeled retail chains. As one observer noted: “Banks frequently overpay by 15% to 20% or more on average for real estate compared to other retailers for comparable space. Over 10 or 20 years we’re talking a lot of money!” (9).
I put together the above table for an article I wrote back in 2010. It shows how much space a merchant could afford to lease if 15% of his or her annual sales were devoted to paying rent (10). The 15% figure makes the analysis somewhat conservative, as a more accurate number would the 8% to 12% range for downtown merchants and about 10% for restaurants. Small merchants just cannot afford a whole lot of space in any successful district unless they have very significant annual sales.
Small retailers have not been the only group impacted on. Jeremiah Moss, in his book Vanishing New York, describes how bohemian artistic live-work areas, such as the East Village, were erased by major retail chains coming in.
Why Do Landlords Ask for Unreasonable Rents? Landlords are not necessarily being venal or thoughtless if they sign these higher paying tenants when they appear on their doorsteps. They are simply responding rationally to proven market demand. Of course, even then, they must decide, perhaps just implicitly, that these non-retail uses will ultimately generate more value than if a current small retail tenant was retained. However, one might ask if they considered how that tenant might affect nearby businesses and buildings or if they just considered their own bottom lines. Obviously, another important question is if considering the impacts of a potential tenant on the district should be obligatory in some way, shape or form? This problem would ease if a landlord or an accomplished EDO owned a lot of downtown properties with retail tenants and managed them like a mall, but that is an unlikely outcome.
Here are some other patterns that I have found in the ways landlords establish their rent increases
- Some increases are based on a reasonably accurate assessment of local rising property values and dominant asking rents. Both of these may already reflect the district’s growing success. These landlords tend to avoid asking for the highest rents. Among them, are a number of experienced professionals who see the landlord function as having strong stewardship aspects and consider what is good not only for their properties but also for those that are near them. I fear that they are a dying breed. How instead can we develop more of them?
- Some small landlords I’ve spoken to simply could not explain the reasons for their very high rent increases, save to say they were products of their best judgments. Among those that I have met, many were new to the U.S. and new to local property and retail markets. A number of them would stubbornly maintain unreasonable asking rents for a year or more. These landlords do not typically care who their tenant is as long as they pay the asked for rent. Here the high rents and vacancies are being sustained by landlord ignorance and management ineptitude. Newness to the area is another factor.
- Other increases are based on hopes, often wishful, that a national chain or other higher paying tenants can be attracted that will pay much higher rents and have a better credit rating than those of the current independent retail tenant. An analysis of the local retail market is either perfunctorily done or simply missing. An example of this is Wong Kee, located in Manhattan’s Chinatown. It recently “succumbed to a new landlord and rising rents.” It was in Chinatown for nearly 30 years. Its lease was not renewed. by the landlord. The landlord wants to build a pharmacy in its place, though there are already several pharmacies nearby (11). This type of landlord needs to learn what is really feasible from a business recruitment perspective.
- A few other landlords – usually those unfamiliar with the downtown, retailing or even property ownership – will ask for very large increases because they paid way too much for their newly purchased building. Their huge rent increases are what they need to financially stay whole. This may be because their bank loan agreement probably stipulated a formula for determining what the rents should be. There was little room for them to consider local market factors, even if they wanted to — and too many didn’t care anyway. According to Jerimiah Moss, banks will devalue a property if it has a small business tenant but increase it for a retail chain tenant. “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” (12). In other words, such landlords have tax incentives that encourage them to demand very high rents and tolerate long-term vacancies. They also seem absolutely oblivious about how a vibrant district will increase their local property values and bottom lines.
The Fairness Issue. Local residents and civic leaders may feel that some of the merchants facing unaffordable rent increases are being unfairly treated. This issue is implicitly present in most usages of the phrase “unaffordable rents” where unaffordable is really seen as a synonym for unfair. Should such an equivalence be accepted? Moreover, why should any government entity or nonprofit help those facing unaffordable rents? Market forces are freely at work and, to quote Barzini in the Godfather, “After all, we are not a bunch of communists.” I would argue that it is not the unfairness of the unaffordable rents that justifies remedial action, but their most important impacts: long-term and multiple vacancies and the loss of many popular, high-quality merchants.
Vacancies. First, let’s establish that a certain level of vacancies is necessary for a downtown to work correctly and prevent ossification. Downtowns need some churn to recruit new, attractive merchants and to get rid of the dregs. I think it’s generally accepted that a vacancy rate below 5% suppresses the desired level of churn while one above around 10% can have bad effects on the district. Many consultants, downtown leaders and, perhaps more frequently, elected officials, believe that vacancies can be an unattractive creeping plague. However, the real problem about vacancies may not be the emptiness of the storefront, but the absence of an accomplish operator to occupy it. Let me anticipate those who will claim that a cluster of empty storefronts is visually an eyesore for the district, diminishes its walkability and a puts a blemish on its reputation, by asking: Is the district really any better when the vacancies are filled by unpopular, inept operations? Bad operators can repel customers and downtown visitors even more than empty storefronts.
It is also important to realize that any valid explanation of today’s retail vacancies must take a multi-causal approach that includes far more cautious consumer behavior, the rise of Millennials who prefer experiences over things, significantly reduced demand by retail chains in terms of both the number and size of their new locations, and affordable rents. The reduced retail demand is especially relevant because many of the landlords that were pushing out independents were doing so in hopes of recruiting the very chains that were hardest hit by reduced consumer favor and demand, such as the apparel specialty retailers.
It is also important to consider that reducing landlord asking rents is not the only way of reducing vacancies. As Andy Manshel reminded me, good results can be achieved by “animating vacant storefronts with temporary art or high-quality other pop up uses.” He also suggested that vacancies could be taxed, motivating landlords to sign leases.
Generally, it can be reasonably argued that concern about vacancies is a misunderstanding of the essential core problem.
The Loss of Popular, High-Quality Merchants. That core problem is not the emptiness of the vacancies, but that ill-informed landlord rent increases can result in the closings of independent merchants who are well-loved in the community. They are real losses for their customers, nearby business owners, and their district. Additionally, it usually is very hard to replace them.
However, it must be understood, that by definition, about half of a downtown’s merchants will be below average in their performance, including their ability to satisfy local customers. Are the potential closings of poorly performing, unpopular merchants the type of losses that are worthy of preventive actions by an EDO or municipal interventions? Some, who are ideologically committed to small businesses, may say yes, believing every small firm by definition is worth retaining or saving. Yet, many savvy downtown managers and civic leaders see a prime result of their revitalization efforts being the replacement of their poor-quality merchants, not necessarily with bigger operators or chains, but with higher quality operations.
Who Should Receive Help? One might cogently argue that the harm done to the public and/or district that would result from the closing of a popular and able merchant might justify an EDO or municipal intervention, but how much sway should the “fairness” of the rent increase have? For example, should an unpopular or incompetent merchant who gets an unaffordable rent increase be helped? That would imply that the fairness issue carries the day. Or will assistance only go to merchants who are able and/or popular? Is the fairness issue unrelated to the issue of the merchant’s value to the community or district? I would suggest that the fairness issue only becomes relevant when the merchant’s community value criterion is satisfied.
My observations suggest that the merchant’s value to the community is very likely to be considered when one specific business favored by an important segment of the community announces that it will soon need to move or close – whatever the cause, e.g., poor sales, increased competition, workforce problems, high operating costs (including costs of space) etc. In contrast, because of the sheer number of businesses involved, municipal attempts to remediate unaffordable rents cannot logistically evaluate each of the benefiting firms and it would probably be a political nightmare to do so anyway. As a result, the fairness issue seems to prevail when municipal actions are taken. For example, here in NYC, the City Council has passed a bill that reduces the Commercial Rent Tax that businesses have to pay if they are located in Manhattan below 96th Street, pay $250,000+ annually in rent, and that have annual revenues under $5m (13).
In several large cities across the nation — NYC being one of them — proposals also have appeared for rent control laws that cover properties with retail uses.
What Kind of Programs Do We Need to Cope with the Unaffordable Rents Problem? Municipal actions tend to treat quality merchants and underachievers in the same way, probably out of necessity. Moreover, both the retail rent control and merchant tax abatements seem to be rather shotgun approaches aimed at helping broad classes of small merchants. The key actors, whose behaviors need to be altered, are the landlords, not the merchants. The retail rent control approach carries with it great potential dangers and certain resistance from the entire real estate community. Yes, the tax abatement helps some worthy merchants, but it also helps make the unaffordable rent increases more bearable. In that way, it implies the increases are justified.
Downtown EDOs may be in a far better position to mount more effective programs to influence landlord behavior. Many of the landlords are probably on their boards and many others have engaged in their programs. Anyone who wants to educate or convince landlords has to have won their esteem, trust, and confidence. The goal of such an educational effort cannot unrealistically be to convince large numbers of landlords. Instead, it should be, to convince a savvy few among them who can lead by example and thereby also exert some market pressures for others to follow.
Probably the best solution to the affordable retail rents problem is to help able merchants buy the spaces they need to do business. They might do this alone or as a group. Buying a single storefront space is unlikely unless it is from some kind of retail coop or condo. In many suburban towns and cities with populations under around 100,000, I’ve encountered retailers who own the entire buildings in which their stores are located. In big, high rent districts with stores located in big expensive buildings that is not likely
It might be possible for buildings that have multiple storefronts to lease, that a partnership of some kind might buy either the entire building if it is cheap enough or just the retail spaces in the larger more expensive buildings. These groups of retailer property buyers most likely will not emerge organically from the merchants themselves. Probably, they will need the catalytic interventions of teams lead by the downtown EDO that has strong active support from the municipal government and a civic-minded developer.
Local governments can do a lot to assist the development of the retailer-owned co-op or condo buildings:
- Provide low-cost land or a low-cost building.
- PILOTS just as developers are ordinarily given.
- Other abatements such as on NYC Commercial Rent Taxes.
The EDO might also help the buyers connect to financial organizations that will provide them with loans that have reasonable terms.
If helping able retailers purchase their spaces is not viable, here are some other actions that might be tried to assist these merchants. Their effectiveness is far from assured. To influence landlords, local governments might consider:
- Using zoning and tax incentives to reduce spaces so that they are smaller than what chain stores would want, perhaps around 1,500 SF to 2,000 SF. Landlord blowback can be expected. Also, quality independent merchants might find such spaces too small and a few chains now might still find them suitable.
- Use zoning to limit where chain stores can go. This has been done for personal service operations and big boxes. Various legal and political problems can be expected. Landlord blowback can be expected.
- Use their own legislative powers to change its tax code to erase any incentives for landlords to demand higher rents and tolerate long vacancies. Also, vacancies might be taxed as if they were occupied.
- Use their external political influence to change the state’s tax code to erase any incentives for landlords to demand higher rents and tolerate long vacancies
If the retailer space purchasing option is not viable, to influence landlords, downtown EDOs might consider:
- Creating either a formula that landlords can use to calculate an appropriate affordable rent for their retail spaces or to identify the steps in an analytical process that can help landlords make a well-reasoned decision about rent increases.
- Educating landlords about the importance of taking into consideration district benefits and harms in their recruitment decisions.
- Make a special effort that targets landlords new to the district, retailing or property ownership.
- Jawbone banks about the value of small merchants to properties and downtown.
- Issue a brief annual report that identifies the most “recruitable” types of businesses to the district and the types of spaces they will want.
- Publicly praise and disseminate information about what landlords who are effectively dealing with the rent increase issue are doing.
To help high value, threatened merchants, downtown EDOs should assist them to:
- Find new locations. Deft use of the Internet can help many independent retailers thrive in locations previously deemed less than optimum.
- Find financing for the move.
- Publicize their new location to let current and potential customers know where they now are.
Who Can Play Downtown?
As Central Social District (CSD) functions and venues have become of growing importance to the vibrancy and success of our downtowns, this basic question has become correspondingly important.
A few years ago, I put together the above table to demonstrate the user frictions that five specific CSD venues and two types of CSD venues have here in NYC. The specific venues were Bryant Park, Lincoln Center (LCPA), Madison Square Garden (MSG), The Museum of Modern Art, and The Metropolitan Museum of Art. The types of venues were movie theaters and Broadway theaters. The user frictions I looked at were:
- When the venues were open.
- Their admission fees.
- Whether the user’s schedule could drive a visit or does the user have to conform to what is available on the venue’s schedule of performances.
- Can the venue be used for visits that last 45 minutes or less? Lots of downtown visitors have holes in their schedules of that length and districts that have venues that can entertainingly plug those holes will be much stronger than those that cannot.
From the perspective of when the venues are open for people to use them, hands down Bryant Park has the most hours open, followed by the movie theaters. LCPA and MSG are basically closed during most days, while the two museums are closed 5 nights a week. If you work or go to school, these results mean that some venues are much harder to use than others.
Another key friction is how much it costs to be admitted to these venues and here is where many downtown users are simply priced out. Again, Bryant Park followed by movie theaters are the most affordable – and in many instances by gargantuan amounts of dollars:
- Bryant Park is free to enter and the fees for using some of its attractions, such as riding the carousel or ice skating, are reasonable. It and other parks in the city cost the least to use.
- At the time I did the research, my check of cinemas in Manhattan showed the average price for a ticket was about $13. Nationally, at the time it was about $8. I would argue that movie house ticket prices should be the benchmark of affordability because so many people still go to the movies.
- MoMA and the Metropolitan Museum of Art rank next in lowest general admission prices. The Met “asks” for a $25 donation; MoMA requires it. The Met request is based on the deal the city made when giving land for the museum that gives NYC residents free admission. Residents can pay what they want or nothing at all. A $25 fee/donation to these museums would be 1.9 times more than the average cost of a movie ticket in Manhattan.
- The prices at Lincoln Center are pricey. An average ticket to the opera costs $156. That’s 12 times more than going to a movie and taking a four-member family could cost a real bundle. If you want to accept alpine, nose-bleed seats you can get a ticket to a NY Philharmonic concert for about $29. But prices go up to about $112/concert if you are a subscriber to a series. That’s 8.6 times more than a movie ticket. Tickets to the opera and philharmonic concerts can be even higher than those cited if they are purchased on the secondary market and there is strong demand for them. But, given that their audiences have weakened in recent years, the markups are not as large as for Broadway shows or Madison Square Garden events. Perhaps in recognition of its high admission prices as well as its mission to serve a broad public, the Philharmonic does give a lot of free concerts on the LCPA’s campus as well as in the boroughs outside Manhattan. It also has a significant educational program in NYC’s schools.
- In 2013, the average price for a ticket to a Broadway show was $98.64. Back in 1955, for her birthday, I took my girlfriend to see Mr. Wonderful on Broadway. We had dinner before at a steakhouse, Gallagher’s and to get to and from I hired a limo. It was a very memorable evening. The whole thing cost under $70, with the fifth-row center seats costing about $8.50 each. Adjusting for inflation, the price of those tickets would be $73.91 in 2013 dollars, substantially less than the actual $98.64. The difference is probably substantially accounted for by higher costs, such as for labor, talent, marketing, and equipment, etc. The biggest problems with today’s Broadway theater ticket prices is that so many of the tickets are bought by dealers who then resell them at substantial markups and that some hot plays are asking for $500 a ticket. Paying $1,000+ per ticket for hot shows.in the secondary market is far from uncommon.
- The average ticket to a Knicks game at Madison Square Garden, in 2013, cost $125, while a ticket to a Rangers was $78. A ticket to a Billy Joel concert at the Garden could range from from $64 to $124. However, here too, a significant percentage of the tickets are captured by dealers in the secondary market and prices for a very popular game or concert can go above $1,000. Joe Six-Pack fans are unlikely to have the financial resources to attend with any regularity the basketball and hockey games of their favorite teams. Their attendance is more likely confined to special occasions for which they either plan early and save or are gifted. For these fans, downtown sports bars may be one way to deliver the more affordable TV access to these games in an arena-like, fan-filled setting.
Parks, other public spaces, and movie theaters are entertainment venues that help make a downtown everyone’s neighborhood. They are the most easily accessible and the least expensive to visit. Consequently, they provide reasons for most of a community’s population to take psychological possession of their downtown. Where they are absent or weak, the downtown will be lacking very important support mechanisms. On the other hand, attendance at the events of many high culture performing arts venues, popular concerts, and professional sports events can only be afforded by those with above-average amounts of discretionary dollars to spend. These folks, too, are assets for their downtowns, assets that downtown leaders only dreamed of attracting in years past.
The Impact of Tourism. The table above was generated from data published online by the Broadway League. It shows just how much the attendance at Broadway shows is dominated by out-of-towners. Just 22% of the ticket holders are NYC residents. Another 18% come from the surrounding suburbs. Most, 61%, are tourists, with about 46% coming from other parts of the USA and about 15% from other countries.
Strong tourism can have important impacts on a local economy. For example, here in NYC, we have about 60 million tourist visitors annually and their direct spending in 2016 amounted to about $64.8 billion (14). About 6.45 billion went to firms in the recreation and entertainment industries. Without tourist expenditures for Broadway tickets, the relatively high ticket prices probably would not have been reached or maintained. One may wonder if a lower flow of tourists would have resulted in lower Broadway theater ticket prices that would have attracted more buyers from NYC residents and from folks in the surrounding suburbs.
As is happening in many entertainment niches (defined to include cultural/arts venues) across the nation, tourism now accounts for very high percentages of the attendance at many of NYC’s major entertainment venues. This is particularly true for our most prestigious museums, where tourists account for 75% or more of their attendance (see table above). These institutions aspire to be and are world-class venues. That means that though they are located in NYC, for New Yorkers, they are no longer just theirs. Some psychological adjustments may be needed. As I write this I remember many years ago, when my neighbors and shopkeepers in Paris warned me in the late spring, that soon “your Americans and the Germans would come” and Paris would not be the same until the fall. They were absolutely right. The buildings, the Seine, the Metro, the museums were all the same, but Paris in the summer was very different. My French friends explained that they felt during the summertime as if their beloved city is taken over by foreigners. It’s really not theirs during those months. Things may have changed in Paris since my student days there, but that sense of tourists taking over is one I’ve encountered in several other communities here in the USA
Tourism can be boon for many downtowns, but it also often is a two-edged sword, that brings a number of problems with it. Some of these problems are obvious, such as how tourism can impact housing and retail, while others may be quite subtle, such as residents psychologically feeling dispossessed in their own communities. Part of the New Normal, as more and more downtowns become adept at attracting tourists, will also be the emergence of these problems.
1. Nellie Bowles. “Dorm Living for Professionals Comes to San Francisco.” New York Times. March 4, 2018. Retrieved from: https://www.nytimes.com/2018/03/04/technology/dorm-living-grown-ups-san-francisco.html?
2. “Employee lives in truck in parking lot.” “Business Insider. October 2015. http://www.businessinsider.com/google-employee-lives-in-truck-in-parking-lot-2015-10
4. Melia Robinson. “All the crazy things happening in San Francisco because of its out-of-control housing prices.” March 6, 2018. http://www.businessinsider.com/why-people-are-leaving-san-francisco-2018-3
5. Wendy Koch, “Mini-apartments are the next big thing in U.S. cities,” USA TODAY, August 1, 2013. http://www.usatoday.com/story/news/nation/2013/07/30/tiny-apartments-apodments-catch-on-us-cities/2580179/
6. Prachi Bhardwaj. “San Francisco is losing more residents than any other city in the US, creating a shortage of U-Hauls that puts a rental at $2,000 just to move to Las Vegas” BI. March 5, 2015. http://www.businessinsider.com/san-francisco-bay-area-residents-moving-away-increase-u-haul-rental-prices-2018-3.
7. Moses Gates. “How a pied-à-terre tax could help solve New York City’s housing crisis.” City & State New York. Aug. 30, 2017. https://www.cityandstateny.com/articles/opinion/pied-a-terre-tax-could-help-solve-new-york-city-housing-crisis.html
8. Nicole Gurran and Peter Phibbs. “When Tourists Move In: How Should Urban Planners Respond to Airbnb?” Journal of the American Planning Association. January 2017. 2017https://www.tandfonline.com/doi/full/10.1080/01944363.2016.1249011)
9. Richard Pilla. “Why banks overpay for real estate” BAI Oct 6, 2015 https://www.bai.org/banking-strategies/article-detail/why-banks-overpay-for-real-estate
10. N. David Milder. “As we leave the recession, affordable downtown retail rents are a revitalization imperative.” Downtown Idea Exchange. May 2010. https://www.downtowndevelopment.com/perspectives/dixperspectives050110.pdf
11. “Wong Kee Vanished.” http://vanishingnewyork.blogspot.com/2018/03/wong-kee.html Retrieved on March 14, 2018.
12. Quoted in Edward Helmore. “New York’s vanishing shops and storefronts: ‘It’s not Amazon, it’s rent.’” The Guardian. Dec 24, 2017. https://www.theguardian.com/business/2017/dec/24/new-york-retail-shops-amazon-rent?CMP=share_btn_link
13. Sarah Maslin Nir. “Tax Break Could Help Small Shops Survive Manhattan’s Rising Rents.” New York Times. Nov. 28, 2017. https://www.nytimes.com/2017/11/28/nyregion/rent-tax-manhattan-local-shops.html
14. Tourism Economics. “The Economic Impact of Tourism in New York.” https://www.governor.ny.gov/sites/governor.ny.gov/files/atoms/files/NYS_Tourism_Impact_2016.pdf