High Rent Blight

Bleecker Street in the historic Noho District of NYC may be resembling bleak street these days.

The New York Times touched on an interesting topic last week: high rent blight.
They used the phrase to describe Bleecker Street in New York City which saw rents soar to $800 a square foot before retailers cried uncle and shut their doors. Now the once red hot street suffers from vacancy; hence high end blight which is considered late stage gentrification.
Which begs the question: can this happen to Atlantic Avenue?
Palmetto Park Road? Pineapple Grove?
When I moved here in 1987, we had conventional low rent blight. Rents were $5-$8 per square foot and vacancy rates downtown were about 40 percent.
Today, some restaurants are paying in excess of $100 per square foot–far from Bleecker Street numbers but still very high for our market.
Rents in Pineapple Grove are $30-$35 per square foot for prime space–(solid rents no doubt) and hardly imaginable back when Norman Radin conceived the district; but still not ridiculous.
But ….
high rents are coming.
They have hit the avenue and the  Grove is next.
Why?
Because we’ve had some incredibly high purchase prices on and off the avenue.

If you talk to veteran commercial real estate brokers, they are wrestling with the challenge of making rents jibe with high land prices.
It’s a conundrum.
If you believe in a free market–and I do–rising prices are driven by the market and represent good news for long time landlords who have weathered good cycles and horrible cycles.
But if you want to see a diverse mix of businesses downtown and if you value independent operators–as I do–the high prices are a major challenge.
As the son of an independent pharmacist I have a little insight into the challenges of making a small business work in a competitive environment.

Today, the challenges are bigger than ever. The internet, Amazon, the very difficult retail environment etc etc., all make it very hard to build and sustain a business. Even well- heeled chains are finding it hard to survive. Throw in high rents, a seasonal economy, high insurance, a tough labor market, competition for people’s time and complicated marketing channels and you can appreciate how hard it is to make it today. You can also appreciate the need to support local businesses and to shop local.

The Downtown Development Authority is wrestling with these issues in a smart way.
They are working with Robert Gibbs, a noted retail and downtown expert who has some familiarity with Delray having worked here during the creation of the Downtown Master Plan.
But no doubt about it, this is a challenging environment. And we need to be cognizant of  that. We also need to be aware of our downtown mix and our demographics too.

When rents get high, restaurants tend to push alcohol–a high margin item. And if we morph from a food destination to a nightclub scene that has consequences ranging from our brand and who hangs out here to public safety concerns and whether we become more of a late night destination than an all hours downtown.

Big topics. Great stuff to chew on.
But what we don’t want to see is high rent blight.

So how do cities address this issue without infringing on property rights or the free market?

My theory is a good offense is a good defense.
So here are a few thoughts.

Successful cities need multiple districts/neighborhoods to perform. If they do, businesses have options on where to locate.
So efforts must be made to transform The Set (and those efforts are being made), but also Congress Avenue, South Federal Highway, North Federal Highway and eventually the “four corners:” of Atlantic Avenue and Military Trail which was rezoned and reimagined a dozen years ago.
You can and should be working on multiple fronts both for practical reasons and market based ones.

The notion that cities can only do one thing at a time is plain wrong.

For example, the players for Congress and The Set are different. The areas don’t compete, they complement. Some investors will want West Atlantic. Some will prefer Congress or South Federal. Some will be interested in all of the above. Your “open for business” sign has to be open for all commercial districts while the economy is good.

One thing we know for sure, the cycle will end, so it’s important to get traction while you can. Development standards can and should be high. But you have to make hay when the sun shines as they say. And you don’t have to offer incentives–just attractive zoning and a smooth and predictable approval process. Be tough, but fair.

In previous down cycles– including the great recession– Delray Beach was the last to city to experience issues and the first to emerge from the doldrums. That was a result of a good planning,  a business friendly environment, a solid brand and a City Hall that knew how to execute.
Those are “hidden” but very real assets. So it’s just as critical that we rebuild capacity at City Hall.
How does this all address high rent blight?
Well..it doesn’t lower rents, or increase availability of affordable housing or commercial spaces overnight but it does spark competition so that if the market skews there are now options in our city. If we don’t create multiple options, people, business and investment will go elsewhere.
Hopefully over time the power of the market will modulate prices to better reflect what’s possible and desirable. That’s the bet, it’s not easy. But it’s doable. One thing for sure, doing nothing guarantees trouble.

Comments

  1. John Adams says:

    One thing I have noticed in London and have not see in the us are large ‘maker markets’ owned by the city. They have relatively small spaces with a huge variety of small businesses. The city doesn’t need to make market profits, so they can keep the shops rent low, add fun shopping destinations. The bring in a diversity of shoppers and help make dure the area isn’t a Hyde street or storeroom Drive. Also. There are areas with “stall” like food venues and out door food courts. Small restaurants share table and dishwashing space, etc. these bring in people for breakfast, lunch and early dinner and let the bigger restaurants handle dinner and nightlife.

    • Jeff Perlman says:

      Dear Mr. Adams…a maker market will be dynamite in Delray and could serve as a great incubator for local purveyors. Wonderful idea.

  2. Jim Chard says:

    Your article is a very important thought piece for Delray’s future economy, particularly as we are working through the Comprehensive Plan. Thank you for your contribution to the discussion.

    I would like to expand on two of your points. We can “walk and chew gum” at the same. It is critical that we not focus on one area to the exclusion of all others. We can certainly focus and emphasize on one area, but not Put other neighborhoods on hold. With over 800 employees, numerous consulting firms, and a budget approaching $140,000,000, we can and should do more.

    Secondly, Delray has other potential hubs of growth and innovation that the City could accelerate, namely Seacrest and NE 22nd, NE 4th Avenue, and SE Second Ave. All three have potential for dynamic growth and incubation space for startups and entrepreneurship.

    Many thanks for your ideas,
    Jim Chard
    Vice Mayor

    • Jeff Perlman says:

      Thanks Vice Mayor.
      I also agree with the other areas you mentioned. It’s easy to turn on investment by sending a message that innovation in those areas would be welcome.

    • Here, here, Commissioner Chard! Please let’s make it happen…
      Our company has brought over 24 companies to Delray Beach over the past few years – and other Commercial Realtors have brought even more – and more are waiting. But there is either no space that fits their business model (fully absorbed market segments), no space that is desirable in where they want to be (in some cases), or no space that is affordable (in other cases). This is all easily fixable with a collaborative Commission working with the residents, property owners and business owners to make it happen.
      A few tweaks to the LDRs in some areas, more code enforcement in other areas – not difficult stuff.
      Our City must stop suing people and companies that want to invest in Delray Beach. Let’s, instead, work together to make Delray Beach the Best Small City it can possible be.

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