How to Jumpstart The Retail Industry After COVID-19
Apr 22, 2020
The retail industry was in trouble before the virus. Online retail and ecommerce sites changed consumer spending habits and the high costs of running a brick-and-mortar retail had a negative impact on the industry. Fast forward to today’s health crisis, we could potentially see the final nail in the coffin unless bold actions are taken by our government, landlord, and retailers to change the course. The loss of retail would be one casualty. But an even more concerning issue would be San Francisco blight once all the storefronts close. This will consequently lead to more crimes, more loitering, more homeless encampments, etc.
Here are four ideas that could potentially not only ease the disaster ahead for retailers, but also begin the process of real growth for the industry. It also has the potential to ensure that building owners maintain building values, which in turn will maintain city revenue through its property taxes.
1. A New Emergency Rental Structure Plan
Right now, it’s clear that retailers will not be able to pay rent in full by the time they reopen their stores. Yes, landlords and tenants can work out their own rent agreements, however this takes time and requires both parties to pay legal fees. Furthermore, landlords facing lower rents will most likely appeal the city for lower property taxes, which will also take time and eventually cost the city much need revenue.
I propose that there be a partnership put in place between the city and our landlords and retail tenants that would replace current lease obligations for a period of 18 months and only a percentage of rent would be owed based on monthly gross revenue. In return, the city would adjust the landlord’s property tax obligation by the percentage loss against their current lease projected income at the end of the first year.
If a tenant’s revenue meets or exceeds their fixed rent obligation based on 6% of gross revenue, then the landlord gets their stated rent and the city does not lose property tax revenue. If the percentage rent is lower than the stated rent, then the landlord still saves its tenant, keeps the storefront occupied, gets some relief in property taxes, and the city saves future property tax revenue while also helping to restore retail in its neighborhood.
2. A Local Small Business Assistance Program
Cities will need to consider a local small business assistance program in order to jump start retailers back into the economy. One of the reasons that neighborhood retailers are dying is that the unemployment rate was low and good paying jobs were readily available. This will change now, at least in the short-term. This means that many will not be able to find work and will look to start their own businesses instead. Cities need to be ready to assist anyone that is interested in opening a retail store. This includes setting up online “how to” guides and training programs, provide assistance in navigating the city’s permitting processes, and setting up SBA loans so that businesses can get immediate cash and get their store up and running again.
3. Make The Permit Processes More Efficient
Cities like San Francisco are part of the downfall of local retail. Our city puts in place lengthy permit processes that are hard to navigate, take too long, and costs the business owner too much money. Each city needs to reexamine their permit processes and look for ways to dramatically remove barriers of entry for future retailers. We need to be less worried about what type of retailer should be allowed in their neighborhood and more concerned about empty storefronts and their negative effectives on our communities.
Zoning restrictions should be reconsidered. San Francisco has an 11 store rule where a retailer with 11 stores or more, anywhere in the world, has to go through a certain 10-13 month review process just to find out if the city will allow their use. That should be removed entirely, starting today. Conditional use permits should also be removed, allowing change of user retailers to have quick access to opening their stores.
The city should also consider lowering all of the add fees a retailer and landlord have to comply with. This includes the new ADA standards, which are costly, time-consuming, and take away available space at a time when retailers will already be losing space in order to accommodate proper social-distancing for its customers.
4. More Police Patrol
Each city should commit now to having more police patrol on foot, roaming the streets with heavy retail shops. Retailers are already going to have a hard enough time without dealing with criminals. There will likely be a higher percentage of homeless or near-homeless civilians who are desperate for money. Thieves will likely be on the rise. Walking police men and women can also help in maintaining social-distancing that will likely be required of retailers as they re-open their stores. Social distancing most likely will also have to be addressed in public streets therefore the need for foot police will be that much more critical to ensure that social distancing is being properly practiced.
These four ideas can be implemented relatively quickly and easily. They must be considered now, before the shelter-in-place ends. These ideas would not only help the smaller retailers out there, but also the larger ones. We need all retailers to survive in order to keep our retail sector vibrant, successful, and available to service our communities.
Written by: Hans Hansson
Hans Hansson is President of Starboard Commercial Real Estate. Hans has been an active broker for over 35 years in the San Francisco Bay Area and specializes in office leasing and investments. If you have any questions or comments please email firstname.lastname@example.org or call him at (415) 765-6897. You may also check out his website, hanshansson.com.