The blog of the Urban Institute
November 19, 2020

Local Policies Can Protect Commercial Corridors as the Pandemic Continues

November 19, 2020

Commercial corridors are the backbone of neighborhoods across the country. They bring together a community’s culture, social capital, and economy to create a heart of urban vitality, or what Ray Oldenburg calls “the third place,” a place separate from home and the workplace, where people can gather and interact. Diverse in size and business offerings, commercial corridors are drivers of local economies, housing local entrepreneurship, employment, and wealth creation.

Yet, the pandemic has destabilizing effects on commercial corridors, eroding both social and economic assets. Increased storefront vacancies not only indicate economic hardship for property owners, businesses, and local governments (through reduced fiscal revenues), but they also affect the surrounding communities.

Though economic relief programs may help prevent more businesses from closing and storefronts from going vacant, local programs can help reduce the immediate social harm of empty businesses.

The pandemic is causing businesses to close and emptying storefronts

At least for retail, the pandemic is accelerating a 10-year trend in rising vacancy rates driven by the rise of e-commerce and changes in consumption patterns. Today, Yelp data show permanent business closures have increased steadily since the pandemic began, and as of September, 60 percent of the 160,000 closures registered in the platform were permanent. The hardest-hit businesses are restaurants, retail stores, beauty stores and spas, bars and nightlife venues, and fitness venues—key components of commercial corridors.

And with closed businesses come empty storefronts along corridors. A recent survey on Manhattan’s Upper East Side found an average of more than two vacant storefronts per block along the Second Avenue corridor. New York City’s Broadway, Boston's Newbury Street, and San Francisco’s Fillmore Street are among many examples of this surging problem.

Vacant storefronts have negative social effects on communities

Research has found that vacant properties are linked to reduced property values (PDF), increased risks of fires, elevated crime rates, and negative impacts on health through injury, the buildup of trash, and attraction of rodents.

Some of these negative effects are more likely to occur when properties remain vacant for longer periods of time. During the pandemic, the most important factor to determining the length of these vacancies will be recovery speed and the effectiveness of governmental relief measures. The type of landlord holding the property also influences vacancy length. Well-capitalized property owners can afford to wait until they find the tenant they want, often preferring chain businesses over independent ones. And large, publicly traded developers must find those tenants able to pay the prime rents demanded by their shareholders.

Property vacancies on commercial corridors can create a vicious cycle. The visually deteriorated landscape and reduced activity decreases foot traffic, further reducing sales opportunities for remaining businesses and increasing risk of additional closures. Decisive and swift interventions by local leaders can help stop this cycle and turn vacant liabilities into community assets.

Local governments have many policy options to reduce the deterioration of commercial corridors

Decisions at the federal level on a second round of economic support for small businesses will be key for the future of commercial corridors across the country, but local public officials do not need to wait for Congress to reach a deal to act.

We lay out a series of policy tools they can consider to address the problem of vacant properties in the near term.

  1. Provide grants and affordable loans to vulnerable businesses so they can afford physical adaptions to adhere to health protocols, such as creating outdoor space to reduce crowding during the winter. Constrained budgets present a barrier to implementing this option, but localities can find creative sources of revenue, such as contributions by developers who request and receive floor-area bonuses. The Neighborhood Opportunity Fund did this in Chicago.
  2. Repurpose existing parking and street spaces along commercial corridors for business activity, and, where weather permits, create outdoor dining parklets and flex zones for curb-side pickups.
  3. Relax zoning and permitting requirements by issuing temporary permits for pop-up businesses (PDF).
  4. Facilitate art installations on vacant properties to reduce the stigma of blight, through partnerships with local nonprofits or cultural institutions.

For the longer term, states and municipalities can also consider the following policy tools:

  1. Vacant storefront taxes. Washington, DC, has experimented with increased property taxes for landlords that maintain their properties vacant to maximize rents, although the evidence has not been conclusive about the effectiveness of the policy in this particular instance.
  2. Ordinances on building remediations. The City of Philadelphia has implemented an ordinance that requires property owners of abandoned buildings to install working doors and windows in all structural openings or face significant fines. Research found the measure reduced drug and property crimes around remediated buildings.
  3. Grant programs for storefront improvements. The Chicago Neighborhood Opportunity Fund provides sizable cash grants to be accessed in combination with loan capital to businesses in historically disinvested neighborhoods. The funds are used for real estate improvement development projects that enhance retail or cultural offerings in the community.

Though recent news around the development of a COVID-19 vaccine is encouraging, social distancing may still be needed through most of 2021. Communities can’t afford for local governments to be idle to the challenges that small businesses and commercial corridors will likely continue to face in the near and medium term. Our upcoming virtual event will lift further policy solutions and strategies for local governments to tackle the problem. Careful planning and creative solutions will be necessary to preserve the tangible and intangible assets of America’s commercial corridors.

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