New York's vanishing shops and storefronts: 'It's not Amazon, it's rent'
theguardian.com
theguardian.com
I recently took part in a commercial real estate search in Soho, probably the biggest shopping district in NYC. The prices in this neighborhood have gone up insanely: one storefront (about the size of a large Banana Republic) recently sold for ~250M dollars, which is obviously absurd. The broker told me that a lot of these stores were taking losses on their commercial leases with the (mis)calculation that the exposure and presence were worth it. This miscalculation is everywhere, you e.g. see the same thing with banks opening locations every 5 blocks. Where the real bubble lies, IMO, is that a lot of the places are going to see competition from online and will no longer be able to justify the losses they've been taking. NYC needs bodegas, bars, and coffee shops - things we can't do online - not Bank of Americas and Banana Republics.
How is it Amazon, when there's no shortage of people shopping in Manhattan? The streets are filled with people carrying shopping bags, every day of the week. Almost to the point of annoyance. Between locals and tourists people are never not out shopping.
>"NYC needs bodegas, bars, and coffee shops .."
There's absolutely no shortage of any of those three things. Those things are so incredibly abundant it seems very odd to say the city needs more of them.
anecdotes are great, but why don't you search for the numbers of brick and motor retail sales vs online sales?
Retail isn’t growing, but it still accounts for 80-90% of sales in almost every industry. Online sales will probably overtake brick and mortar… in 5 to 10 years—in the US.
Amazon is big, but only really in he US. And only certain verticals. And only typically among affluent urban households.
That’s why their stock has always been so high. Amazon has, and still has, massive growth potential. When you get everything from Amazon you assume everyone else does. But the reality is that you (and I) are an extreme minority.
You forget how many people pay cash in the US. And how many people international have shit or extremely poor/expensive mail service. And how >3 billion or so people live in countries with import tariffs that are 40% or more. And while internet access is prevalent, buying everyday items online is not. It’s really easy to lose sight of how the vast majority live when you live in an urban area and work at a technically progressive company.
See also just this year their recall of eclipse glasses.
After four tries to get name brand and working batteries for my car remote on Amazon, I gave up and purchased them at a local hardware store. It wasn't as convenient as Amazon, but it was a lot more convenient than Amazon allowing scum to sell repackaged no-name crap instead of the particular batteries I needed over and over again...
We needed a refrigerator water filter a month back. So I head to amazon and look at different products available, including cheaper. Didnt like the reviews for the 3rd party and went the samsung filter. And I see what they offer is retail price.
I read the reviews and I see a trend on the comments "counterfeit", "counterfeit", and "not real product". And that was from Amazon, on a verified product's line.
So I went to Lowes. They had them in stock for the same price. Except with 0 chance of counterfeit.
I'm sure this is helps Amazon with logistics, but it also makes it difficult to catch counterfeit goods.
It's made me pretty leery of ordering anything from Amazon.
Is there something wrong with the AmazonBasics brand? I’ve never had problems with them.
These days I'll absolutely check elsewhere before making a purchase, and I'll pay a bit of a premium to either buy from a different store or to get items shipped from the seller instead of from Amazon.
Sounds about right.
For the rest of the world Amazon is at best a bookstore that is actually just a middlemen for other online retailers. This doesn't even register in any real estate decision.
Its like everyone not Bezos chose to completely ignore the internet.
I can only imagine Bezos had to leave the room during negotiations because he was laughing too hard.
There is a reason why most people get a touch and feel of things at places like Target and then buy it online.
In India where large retailers like Target are absent and people have no way of getting the 'look and feel', the trend is its getting very hard to sell things, unless you throw impossible discounts at customers.
That's what Borders upper management said in the mid-90s and at the company's peak, and they were wrong. Showrooming didn't make people buy elsewhere when Amazon had the lower price, either.
You’re describing why online will badly damage NYC retail, which is the context of this conversation.
Why do I need to search for numbers comparing brick and mortar vs online? Of course online retail is growing faster than brick and mortar but the topic here is New York City which is an outlier. NYC is a shopping destination for US, international and tri-state area tourists.
People come to NYC specifically so they can shop along the retail corridors of Broadway in Midtown, Soho, Nolita and the Meat Packing Districts, The Flatiron and many others. It's seen as an experience since you can walk, shop and see landmarks like Rockefeller Center, The Empire State building, Grand Central while you do so.
https://therealdeal.com/wp-content/uploads/2017/04/Manhattan...
I can assure there is nothing unique about the Amazon experience in NYC compared to somewhere else.
And if you have disposable income to use on Amazon.com while you are visiting NYC then presumably you could also spend a similar amount locally.
This is patently untrue.
Walk down 9th Street between 1st Ave and 2nd Ave where small designers have their own retail shops and ateliers. You can't buy that stuff anywhere else.
Go up to B and H Camera in midtown that has 5 floors of camera equipment and incredibly knowledgeable staff.
Step in to the Gem Spa on 2nd avenue, a news stand in the East Village where the man behind the counters will hand make you an egg cream for a dollar.
Go to the Strand, a book store that has 15 miles of books and some great bargains on new hard cover books.
Walk into the Sunshine Mart where you feel like you've been magically transported into a grocery store in Tokyo.
Visit Old Good Things in Union Square which is basically an architectural salvage store. Many of the pieces are sourced locally.
Venture over to The Market on Mulberry where artists and designers sell their hand-made wares directly.
Step into Lobels Prime Meats on the Upper East Side and tell me its like any other butcher shop.
Visit Rough Trade in Williamsburg that is perhaps one of the best records stores anywhere, specializing in new and special release vinyl.
And the list goes on. There so many of these places. But you won't discover them spending time on Amazon.com. That was point.
bogomipz thanks for the recommendations. I've lived in NYC for 5 years a few of those were new to me.
I'm sorry you are not impressed. I'm sure nobody will mind if you don't visit.
>>> Walk into the Sunshine Mart where you feel like you've been magically transported into a grocery store in Tokyo.
These two ideas are not compatible. "It feels just like a store in Tokyo" is the opposite of a "unique experience".
And even that one which is similar to Tokyo is a different experience than amazon which is really where his list was aiming to provide contrast.
Out of a list of nine suggestions that's what was important to you?
Then, when I did arrive, I got to spend the time I had visiting interesting locations and enjoying the scenery in stead of shopping in big chain stores for stuff I knew I wanted anyway.
NYC is a reflection of america. The old school Greek diner has been replaced by Starbucks and non luxury retail is largely homogenized.
It’s also a much les diversified economy than it was in the past. New development of fancy building that lay empty as speculative investments starve out the storefronts.
Good. If the old school greek diner that has been in the neighbourhood since 1970s does not own the bricks is probably is a sucky diner that has not kept up with the times. It also probably means that it is way too large. Corner stores in Manhattan give you what a old school greek diner gave you food wise. The diner simply did not adapt.
> New development of fancy building that lay empty as speculative investments starve out the storefronts.
So? They collapse and new places go in there. That's why we have abundance of popup stores in such spaces in Manhattan and developed portions of Brooklyn ( think Williamsburg, Dumbo, Park Slope )
Most of the complains are coming from old timers, such as the ones that live in rent regulated or rent controlled apartments sometimes paying $250 a month for FOUR BEDROOM. I'm sure what they would really want is that the stores where they shop were also regulated so they could pay 3% of the prices those who showed up after them pay.
Easier than giving out business loans. All those new branches will disappear in a few years as real estate profits peak.
Not necessarily. One bank I worked at discovered that people are more likely to sign up for online banking if they had the reassurance of a physical presence. That's what those branches are really for. The lower overall servicing cost of an online customer makes up the difference in the rent. They aren't full of traditional lines of tellers doing everyday transactions, they are spacious inside and you go there for advice and big items like mortgages or pensions or life insurance, sitting on a sofa sipping a coffee.
Edit: Found the discussion and link. Not exactly the way I remembered it but interesting nonetheless:
These days a branch is also just a large secure space for machines to get money out and put it in.
I have yet to go to a branch that does not "carry money". In fact, I occasionally use human tellers when I want specific denominations of bills for some reason.
> Like, what would you even DO in a bank these days.
* Loan origination paperwork
* Cashier's checks
* Notarization (I get it free for being a customer)
* Needing more than $400 cash
* Depositing coins
These are not things I need to do often, but each has come up at least once in the past couple years. I have also noticed that in Manhattan it is common for banks to have ATM lobbies in place of full branches. I hit one of those at least once ever couple weeks.
Thus, neighborhoods with lots of retail businesses also need enough bank branches to support these businesses.
Landlords would rather have empty buildings than lower rents, that fact has nothing to do with Amazon.
As an American, I recognize international standards are important.
The Library of Congress.
https://www.citylab.com/equity/2012/03/us-urban-population-w...
8 months down the line, the sales are bad and rents are too high. He says, one of the reasons this is happening because the mall is mostly empty. People are shopping online and the foot fall is decreasing year on year.
So, while I agree on Amazon or online shopping in general. I disagree on the 2nd point. Bars, coffee shops etc. will also face the same dilemma, especially if they are not in the right location. In which case, rents still play a large role.
Leave it vacant and your property taxes triple to offset this cost.
An empty commercial space is also not bringing in any sales tax. No employees implies no income tax. Etc.
Growing up in Brooklyn in the 80s, I remember snaking across busy side streets and back-and-forth across the main street to walk along the well-occupied areas. Stumble into a dark corner or and you could get jumped.
Much of her writing is age-old and not directly relevant now, but the concepts life on. All these are well argued in Jane Jacobs' https://en.wikipedia.org/wiki/The_Death_and_Life_of_Great_Am...
This sort of strategy is also followed at municipality levels such as the Netherlands' ABC location policy.
Because next it will be, "the wrong business is using the space" and not generating enough revenue. This is how we ended up with condemnations of private property. Someone decided that it could be put to better use, as in generate more taxes. Kelo vs New London ring any bells?
Simply put. Once a foot in the door of abusing the rights of private property owner's is there, there is no end in sight of justifications to come
"What’s been hardest is the way our legal system is structured to favor private property. I think people all over this city, of every background, would like to have the city government be able to determine which building goes where, how high it will be, who gets to live in it, what the rent will be. I think there’s a socialistic impulse, which I hear every day, in every kind of community, that they would like things to be planned in accordance to their needs. And I would, too. Unfortunately, what stands in the way of that is hundreds of years of history that have elevated property rights and wealth to the point that that’s the reality that calls the tune on a lot of development."[0]
[0] http://nymag.com/daily/intelligencer/2017/09/bill-de-blasio-...
At some price someone will decide that the building is a worth while risk. You might not like that price, but there will be a price you like more than getting hit with high taxes for owning an empty building. The point here though is not to keep you, the landlord, rich; it's to make a city full of shops with happy customers, taxable sales, etc. If you can't make your building work for you then your business has failed and you need to move aside to let someone else use that real estate asset. That's how capitalism works.
The whole reason we even have cycles of growth and contraction is because feedback loops are too slow so we always react too slowly, and when we do we over correct. But that might be an unsolvable problem and just a fact of nature.
It is, after all, a purely pecuniary concern on the part of the landlords.
More generally speaking, real estate market failure is very much a problem that local policy can solve. Global investors are looking for safe havens for their wealth. As much of the attractiveness has to come from the local legal environs, which can be more or less friendly to those types of investors.
It just takes the political will, which admittedly, can be quite thin.
I'm not sure if such a policy would help, it could act as something tantamount to rent control - but its not hard to make a policy in such a way that it wouldnt have a negative feedback loop.
I'm sure that won't depress real estate value at all.
Perhaps they would if they lowered the price instead of raising it.
> I'm sure that won't depress real estate value at all.
If the problem is real estate value inflation then that does represent a solution, don't you agree?
that also may mean that the future tenant would have to pay even higher rate in order for the landlord to recuperate those additional expenses.
When the commercial space goes vacant, increase property tax by the monthly average of the rent charged over the past 7 years (excluding months with zero rent).
If rented to a commercial entity with more than 100 employees (including part-time and temp) the property tax does not decrease, otherwise if to a mom/pop type business the tax will drop.
Maybe this will encourage 'livable' rents.
I've experienced this in several different neighborhoods I've lived in, but it's worst in my current neighborhood (Upper West Side).
This article gives some high-level reasons (institutional investors more willing to wait for higher rent, banks devaluing non-chain properties, real estate bubble). But it's hard for me to imagine the math works out for leaving a space vacant in NYC for years.
This article doesn't answer the question directly but it came to mind: https://www.nytimes.com/2017/05/31/fashion/bleecker-street-s...
What I don't get is why there aren't more fun pop-up shops appearing in these spaces?
Certainly as a residential renter for ~12 years (in the same areas that have high vacancies) I haven't seen a rent increase like that.
The answer is probably that Apple has a clause in the contract that says that if you give another client a better price than you gave Apple, Apple gets to renegotiate.
If you got a particularly good rent from Apple, it's probably better to leave the place beside completely empty.
An interesting comment that dovetails nicely with this: https://news.ycombinator.com/item?id=16002397 :
Seems simple to fix. A building sitting vacant is depressing everything around it, pushing an external cost onto the city.
Leave it vacant and your property taxes triple to offset this cost.
Such a policy would probably need fine-tuning (e.g. what is the optimal number of months before taxes kick in, what is the optimal rate schedule, etc.), but it seems reasonable on its face.
https://sf.curbed.com/2015/1/26/9999036/11-years-after-closi...
I've heard rumbling that something will go in there, but nothing yet.
The additional reasons they give:
* increasing prevalence of chain stores who move slower on real estate deals
* willingness of national chains to pay high rents and lose money on a store
in a famous neighborhood to boost their brand reputation
* landlords "warehousing" properties, waiting for rezoning or new development
* rezoning causing an oversupply of commercial property in an area
* unrealistic expectations of landlords who have not adjusted to lower
rents caused by online competition
* sunk-cost fallacy - for properties bought in 2014-2015, landlords could
face "losing" money by renting for less than their mortgage
* increased prevalence of "demolition clauses" in leases - that allow
for eviction of tenants if the landlord wants to demolish the building -
making it harder to find a tenantVacant for years is a bit unusual. But being vacant for months seems to be the norm now. I think this is mostly because the type of tenants that can afford these rents or the ones the landlord wants are big corporate chains. These are entities that don't move very quickly or don't need to move quickly. It seems that vacant stores fronts are invariably replaced by the same 5 banks(Citi, Wells Fargo, B of A, Chase, TD) and the and two drug stores Duane Reade and Rite Aid.
These 7 companies have achieved absurd levels of density in Manhattan and it may even be that they are finally slowing these insane saturation campaigns they have undertaken.
In the meantime, I lost my coffee spot and my egg breakfast sandwiches.
As more and more wealth flows into this type of venture, whoever wins the bidding war for a property has to charge higher rent to somehow recoup the investment they made to buy the property AND make profit on top of it.
And of course there aren't THAT many small businesses that can pay that kind of rent.
Table H-2. Share of Aggregate Income Received by Each Fifth and Top 5 Percent of Households
https://www.census.gov/data/tables/time-series/demo/income-p...
Percent of income for the 3 middle quintiles in 1970:
10.8
17.4
24.5
total: 52.7%
In 2016:
8.3
14.2
22.9
total: 45.4%
The difference: 7.3%
The GDP of the USA in 2016:
18.57 trillion
https://www.google.com/search?q=usa+gdp+2016&oq=usa+gdp+2016...
So if the middle classes still had the same share of national income as they had in 1970, they would have an additional $1,355,610,000,000 to spend or save.
Retail spending in the USA in 2016 was around $5 trillion:
https://www.emarketer.com/Article/US-Retail-Sales-Near-5-Tri...
Hold the spend/save ratio constant and we can say that retail spending would be 27% higher in 2016, if the middle quintiles still had the same percentage of national income as they had in 1970.
You can make some adjustments for the increased spending in the top quintile, but most of the income has gone to the top 1% and most of that goes to savings rather than spending.
Obviously, all of our current stories about retail would be different if the middle classes still had the same percentage of national income that they had in 1970.
And please, please, please note, Amazon only had $131 billion in sales during 2016. It's impact is very small compared to that missing $1,355 trillion.
For me the biggest problem is the independent restaurants and coffee shops that cannot afford the high rent. They have to increase prices to survive. Most people are not willing to pay $4 for coffee or $12 for a sandwich. When you go to a coffee place you're not thinking about the rent the place is paying and if their prices are justifiable or not. Many people find cheaper places to go to. These places are usually run by people that either lucked out with landlords who didn't increase their rent for many years, or ones who own the property and are not affected by increasing rents.
Others mentioned banks that don't mind losing money because the physical presence helps their Online banking. I noticed this trend around where I live too. A new coffee shop was recently opened after the place was sitting empty for many months. The new place runs by a catering company. They probably don't mind if the place is losing money as long as it helps their catering business. It's a different way of doing marketing.
The Walgreens in Porter Square closed due to over-saturation, not necessarily high rent costs. They plopped a store in an area with staunch competition from others and themselves. Perhaps they thought they'd steal CVS' business. Clearly they could not after just shy of two years. This article has more details: http://www.cambridgeday.com/2015/07/16/walgreens-closing-por....
Assuming markets are relatively efficient, it's a good thing that landlords leave lots vacant -- they're waiting for a future higher-paying tenant who can afford to pay the higher rent because they'll provide more value to their customers -- and these landlords are paying through the nose in lost rent while making that bet.
This ensures there's space ready-to-go for the expensive wine bar customers would prefer over the cheap cafe that would otherwise already be occupying it, or the luxury bakery over the dollar store -- and just like anywhere in a capitalistic system, we assume that the store that produces the most profit (and therefore can afford the highest rent) deserves the storefront, because this is the best use/value for those potential customers.
At the same time, I'm ready to rip my hair out over another favorite shop being replaced by yet another Duane Reade pharmacy or Bank of America branch. But you know who I blame? The customers, not the landlords. As depressing as it is, it's clear people in that neighborhood will now pay more for the convenience of banking and aisles of toilet paper than the old stores, and so be it.
Which is why, for the first time, I'm moving from Manhattan to Brooklyn. Which is fine -- in my eyes, parts of Manhattan may be getting worse, but parts of Brooklyn are only getting better. Neighborhoods aren't supposed to stay the same. I'm not going to lament a lost New York, when a new one is always forming!
In other words, it's not the customers, it's the banks and the corporations who own the buildings.
You can never blame the customer. They can’t find it at the price they can afford, they’ll move elsewhere.
A hypothetical scenario where this market could self-regulate is 1980s NYC happens again in 2020. Blight and crime everywhere, but wow! Look at how that commerical real estate became more affordable.
The point of government regulation on these sorts of things is to reduce how far the pendulum of capitalism swings. When it moves too far in either direction, it only benefits a few people.
But careless destructive regulation that harms the city's economy is the fastest way to get straight back there.
And later it's said losses can be written off.
Point being, it sounds to me, like the tax code is such that it's a win if you lease, as well as a win if you don't.
That obviously drives up demand (to own such properties).
That obviously increases price / value.
That obviously increases the owners expectation on what to charge for rent.
So now we have owners who are subsidized (read: incentives with ill effects) and need not be mindful of the market.
What could go wrong?
I believe the situation was bad but manageable before Obamacare and it became unbearable for many small businesses due the the ever rising costs of employees’ healthcare.
yet one more reason why "health insurance" should not be something remotely tied to your employer nor employment status. :/
healthcare cost ought to be called what it is : levies on society, so that those who get sick can get care without paying. healthcare tax, or medical levy.
what other types of insurance? social security / medicare? some employers might provide life insurance as well, but... that's it. oh... "unemployment insurance" I guess, in some states (all of this is assuming US for discussion, btw).
Some employers provides vehicles, which also has insurance associated with it.
With the current healthcare costs structure, I wouldn’t mind if the quality of healthcare received was amazing (at very little cost). But employees end up paying a lot even with a good insurance, every year.
So in a sense, the health insurance industry is incentivizing big businesses by shuttering small ones (and those employees will go work for a big biz).
If small businesses (I guess less than 200 employees were exempt from providing healthcare, Amazon would have a much tougher time to cope with such competition.
Right now it is a cake walk. Amazon’s robots in the warehouses don’t need health insurance.
With the latest tax cuts it’s very evident that this country favors Large corporations over small businesses.
May be it is a good thing, but I bet in the next 20 years, America won’t have the highest GDP if some of the things don’t reverse.
Also expect a crash by 2020.
Business under 50 employees are exempt from the ACA rule requiring them to provide healthcare. I doubt many small retail stores have that many employees.
If people get the message the rent will fall.
I'm not completely sure how big of a problem that is. I have a feeling there is a larger trend of the big companies squeezing out the little guys more and more. I don't think over-regulation is the whole picture, but I'm pretty sure it's at least a small part, and maybe a pretty big one. That makes it feel rather odd that the usual recommended solution is yet more regulations. One more set of regulations that the big companies will find a way to document their way around or use political pull to get around, while the little guy can't keep up with it all or document compliance with everything, and gets their business destroyed if they mess up.
I kind of hope somebody proves me wrong actually, since this makes me a little depressed about the future.
Related: http://slatestarcodex.com/2017/02/09/considerations-on-cost-...