VIEWPOINT: Skyrocketing Rents Changing the Local Business Landscape
Nov 28, 2016
The following is reposted from the Charleston Regional Business Journal (Jan 9 – 22, 2017; Volume 23, No. 1):
The rising cost of housing regularly grabs local headlines these days, and the subsequent impact to our citizens is the subject of frequent articles, forums, cocktail party conversations and public meetings.
Skyrocketing rents are also wreaking havoc in the local business community. At Lowcountry Local First, we hear about this frequently in conversations with the more than 500 companies that comprise our membership. Earlier this year, a national report was released by the Institute of Local Self-Reliance ranking rising retail rates in 13 cities across the country, and Charleston topped the list with a citywide 26% increase in retail lease rates over the course of a year.
Let me emphasize that again – a 26% increase in retail lease rates citywide over the course of one year. The price of a thriving economy? Perhaps. Yet many of the one-of-a-kind businesses that draw the talent sought after by knowledge sector companies and which provide a unique shopping experience for visitors – unlike Charlotte or Nashville or Atlanta – are struggling, moving to more affordable cities, or closing-up shop.
The report cited citywide retail lease rates have skyrocketed to $27 per square foot, and in downtown Charleston, the average asking price is now $38 per square foot.
Our research has found prices significantly above those cited in the report from April 2016. In October 2016, a representative from a local property management group quoted the following current rates for King Street retail space:
$70-80 per square foot for lower and middle King Street (lower = Broad St to Market St, middle = Market St to Calhoun St)
$50-60 per square foot for upper King Street (Calhoun St to Spring St)
So, a 2,000-square foot space at $75 per square foot is looking at a $12,500 monthly rent.
Several longtime King Street area retailers have decided to leave the retail heart of Charleston this year. Morris Sokol Furniture, Hughes Lumber and just this month Bob Ellis have announced closings and the sale of their buildings. This is the best case scenario – the sale of owner-occupied buildings that will provide profit for the business owner. The majority of retailers on King Street do not own their buildings, and operate at the whim of landlords and market forces. Wayne Welden, owner of The Vault, a retro sports apparel store, moved his business to Greenville after six years on King Street when he was not able to renew his lease, despite agreeing to a 200% rent increase.
What are the causes for the affordable commercial space crisis happening here and in cities across the United States? The Institute of Local Self-Reliance report cites the following:
- Soaring commercial real estate prices – A global surplus of capital seeking higher and higher returns is flooding into urban commercial real estate, causing a speculative run-up in prices.
- The increasing popularity of cities – Cities are booming as more people seek walkable, mixed-use urban districts. While this has increased opportunities for businesses, it’s also driven up demand for small storefront space, with the rise in rents often significantly outpacing sales growth.
- The growth imperative of national chains – Increased demand is also coming from national chains, which, having saturated the suburbs and under pressure from shareholders to show square footage growth year after year, have turned to cities to sustain their expansion.
- A limited and declining supply of small spaces – Older urban buildings are being redeveloped or razed, and the projects that replace them often provide spaces that are designed for chains and too large to be suitable or affordable for local entrepreneurs.
- A preference for national companies over independent businesses in commercial real estate financing – Banks and other lenders often provide lower interest rates of better terms if a property owner or developer has signed national, brand-name tenants.
– Institute of Local Self-Reliance, “Affordable Space: How Rising Commercial Rents Are Threatening Independent Businesses, and What Cities Are Doing About It,” April 2016
The impact of rising lease rates is not limited to the retail sector or to the downtown area. We hear from local makers, food/drink product companies, farmers, and business services (marketing, printing, design, legal, etc.).
How can we as a community implement creative programs and policies to level the playing field for our homegrown, one-of-a-kind businesses?
Cities across the country are implementing bold-yet-practical (or bold and impactful) solutions to level the playing field and help shape the type of community in which we all want to live – the one with the unique businesses rooted in our community, that support our community. Where local ownership builds local wealth, equity and decision-making.
And why does it matter?
It matters because local-independent businesses recirculate significantly greater percentage of revenue – three times more – back into our local economy, as compared to national corporations. This is known as the local multiplier effect. The result is increased tax revenue, which supports our parks, our schools and our infrastructure – better communities for all of us. And, finally, we all pay too much for our rent and mortgages to live in ‘Anywhere, USA.’
The report cites a range of ideas adopted by cities for “keeping space affordable and ensuring that entrepreneurs continue to thrive:”
- Broaden ownership
- Reduce the power imbalance in landlord-tenant negotiations
- Zone for a local business environment
- Set aside space for local businesses in new development
- Create a preference for local businesses in publicly-owned buildings
- Recognize businesses as cultural landmarks
For more detail, read the full report: ‘Affordable Space: How Rising Commercial Rents Are Threatening Independent Businesses, and What Cities Are Doing About It.’
How can we tip the scales in a better direction?
Business owners and community members:
- Challenge yourself to increase your spending with local businesses by at least 10%. Use our Local Business Directory as a guide: http://lowcountrylocalfirst.org/business-directory/
- Contact your city, county and state elected officials to ask them what they are doing to level the playing field for the local business community.
For more information on these strategies, and to learn about the policies and programs Lowcountry Local First has proposed, visit LowcountryLocalFirst.org
Lauren Gellatly is the Community Development Director at Lowcountry Local First, a nonprofit organization that cultivates a model of economic development anchored in local ownership to build economic opportunity and celebrate the unique character of the Lowcountry.
Source: April 2016 report by Institute of Local Self Reliance, “Affordable Space: How Rising Commercial Rents Are Threatening Independent Businesses and What Cities are Doing About It. Figures show increase in the cost of space from April 2015 to April 2016.