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.