This report examines what’s causing commercial rents to skyrocket and explores six broad policy strategies that elected officials and community leaders are proposing to address it.
Report: Affordable Space. How Rising Commercial Rents Are Threatening Independent Businesses, and What Cities Are Doing About It. By Olivia LaVecchia and Stacy Mitchell. Institute for Local Self-Reliance, April 2016
We find that the sharp rise in rents isn’t limited to affluent neighborhoods. It’s happening across a range of communities, with some of the most intense pressure falling on businesses in lower income neighborhoods. The problem is especially detrimental to people looking to start new businesses, further raising barriers to entrepreneurship and stunting economic dynamism.
Just as there’s a public stake in the availability of affordable housing, so too is there a public interest in the commercial side of the built environment. Having a healthy independent business sector is closely tied to other municipal policy priorities, including reducing climate emissions, expanding jobs, lessening economic inequality, and strengthening the social fabric of neighborhoods.
Summary of Policy Recommendations
- STRATEGY 1: Broaden Ownership.
- STRATEGY 2: Reduce the Power Imbalance in Landlord-Tenant Negotiations
- STRATEGY 3: Zone for a Local Business Environment
- STRATEGY 4: Set Aside Space for Local Business in New Development
- STRATEGY 5: Create a Preference for Local Businesses in Publicly Owned Buildings
- STRATEGY 6: Recognize Businesses as Cultural Landmarks.
“This report outlines a range of ideas that elected officials, business owners, and community leaders have come up with for keeping space affordable and ensuring that entrepreneurs continue to thrive:
1. Broaden Ownership
Although not suitable for every small business, owning rather than leasing is one of the best ways to ensure stable occupancy costs. Only a small minority of independent retailers currently own their space. Several cities are exploring programs to increase that share by helping businesses buy their buildings, or buy their spaces as commercial condominiums. Another approach involves expanding community ownership of commercial buildings. Through various structures, such as real estate investment cooperatives, neighbors can invest in commercial buildings and guarantee local businesses long-term stability and reasonable, cost-driven rent increases.
2. Reduce the Power Imbalance in Landlord-Tenant Negotiations
Another set of policy ideas would give small businesses certain rights when it comes time to renew their leases. These protections might include an established timeline for negotiations, an option for a long-term lease, and recourse to arbitration. Cities are also looking at ways to provide property tax credits to landlords who provide affordable leases to locally owned businesses.
3. Zone for a Local Business Environment
Zoning can be a powerful tool for creating a built environment that provides plenty of opportunity for local entrepreneurs. Key strategies include protecting the varied fabric of established commercial districts, ensuring an ample supply of small spaces, and adopting business diversity ordinances that encourage a mix of different types of businesses.
4. Set Aside Space for Local Businesses in New Development
Several cities have required that a portion of the space in select new development projects be set aside for locally owned businesses. These requirements could be codified and applied across all development projects that meet certain size or location thresholds.
5. Create a Preference for Local Businesses in Publicly Owned Buildings
Cities often own and invest in real estate themselves. Some are establishing a preference for leasing spaces in city-owned or -financed buildings to locally owned businesses. In underserved communities, this could include offering space at below-market rates to local, neighborhood-serving businesses.
6. Recognize Businesses as Cultural Landmarks
Following in the footsteps of Rome, Paris, and London, San Francisco has established a program to recognize and support longstanding, culturally significant businesses. The program provides incentives to landlords who agree to 10-year leases, and it could also evolve to help businesses purchase their spaces.