Understanding Urban Retail Vacancy
Jein Park (Urban Institute)
In many cities across the United States, the retail sector has been in long decline and the COVID-19 pandemic has accelerated permanent store and mall closures, bankruptcies, and job losses. Although commercial corridors have been recovering at non-generalizable rates, the disruption to small business activity caused many more storefront vacancies than cities know what to do with. The issue of focus in our paper, storefront retail, is highly valuable as it contributes to the quality of street life, pedestrian-oriented urban design, and active frontage that promotes social exchange. Commercial corridors with high presence of retail vacancies often report declining quality of sidewalks, increase in crime, and a viscous cycle of economic disinvestment. In our UAR paper, we provide some insight about storefront vacancies in urban neighborhoods from the perspective of business organizations. We interviewed business organizational leaders about the causes, impact, and mitigation of retail vacancies and summarize our findings in our paper.
Retail vacancy is an under-researched topic in academia because disaggregated data is very difficult to obtain. Furthermore, vacancy information is largely dependent on the ability of organizations to track vacancies within their service areas. Not only do vacancy rates constantly fluctuate but vacancies are also sometimes hard to define, as vacant spaces might be leased but waiting on the proper permits to for move-in, which can take months. Despite the difficulty of tracking retail vacancy data, the issue is critical in helping address factors that can lead to healthy communities. To get on-the-ground perspective on the reasons for retail vacancies and the mitigation strategies around them, we conducted 18 interviews of Chicago business organizations during 2018 and 2019. We asked each respondent a standard set of questions: their knowledge of vacancy trends, what they believed were the reasons for retail vacancies, the impact vacancies have had on their neighborhoods, and what their approach has been to address retail vacancy.
Commonly cited reasons for retail vacancies included structural transformation, demographic change, fluctuating urban context, challenges with property owners, and the increased cost of being a retailer. As parking has become more inaccessible in the city without public transportation becoming more proportionately accessible, foot traffic to many commercial corridors has declined over the years. Some communities are still feeling the effects of mid 20th century suburbanization, which undermined formerly vibrant commercial corridors by pushing businesses and residents to the suburbs. This produced demographic change, which harmed businesses that catered to a certain culture or income level. Demographic turnover produces an unstable customer base and these transition dynamics are thought to lead to an increase in vacancies. Some neighborhoods and commercial corridors experience cultural shifts that leave once-vibrant spaces dormant for decades. For example, a neighborhood that used to be a thriving theater district in the mid-20th century struggles to fill retail space when that inventory demand no longer exists. Other factors for vacancies that relate to urban context include lack of easy parking options, the positive relationship between vacancies and crime, and long-term construction that makes it more difficult to access.
Respondents also commonly cited property owners as having an irrevocable impact on vacancy rates. Some property owners let empty storefronts sit empty due to a state law that allows tax breaks for vacant buildings. Under the current legislation, property owners can apply for tax breaks if their buildings became vacant unexpectedly and they show evidence that they are actively marketing their buildings. However, this evidence may be as simple as having a sign on the storefront. For buildings that are in poor conditions, some property owners reckon that getting a tax write-off for their empty building would be less expensive than renovating the building. Other times, property owners are absent and allow vacant storefronts to remain empty in order to hold out for a business that can pay the highest rent possible, putting mom and pop stores at a disadvantage.
Mitigation strategies for retail vacancies were highlighted in our interviews complementary to the reasons for vacancies. These strategies fell into several categories that include policy advocacy, funds for renovation, marketing, direct involvement with leasing, and relationship building with property owners. Several respondents called for direct policy advocacy to reverse vacancy tax relief as well as to advocate for government-backed programs that would allow property owners to access capital for renovations and improvements. Organizations also pursue marketing for empty storefronts, sometimes by “activating” them by offer pop-up stores that might convert into long-term leases, or by subsidizing art projects on the storefront as a beautification effort. Furthermore, several respondents are involved with direct property leasing to understand their neighborhood’s property inventory and to better understand the local economy. To do this, they may hire interns or partner with external organizations to collect data on property maintenance and vacancy status. Finally, organizations are also active in relationship building with property owners to keep them connected to resources dedicated to property owners and help them fill vacancies or prevent them from happening in the first place.
Our paper attempted to fill a noticeable research gap in retail vacancy research and offered insights for the various reasons that cause vacancies as well as how business organizations in Chicago manage vacancies in their neighborhoods. We hope that the results of our interviews will stimulate research aimed at supporting the urban main street. Many ideas offered by our respondents require empirical backing, but the patterns that emerged from recurring anecdotal evidence still create a strong motivation for further research in this space.
Jein Park is a Community and Economic Development research assistant at the Urban Institute. Her research interest focuses on economic empowerment through the combination of government policies and community-based initiatives. Before joining Urban, Park conducted field research in Chicago on e-commerce's impact on small businesses and how retail vacancies affect neighborhoods. Park graduated with honors from the University of Chicago with BAs in public policy studies and sociology.