The retail health of Palo Alto's various commercial districts has ebbed and flowed over the decades, influenced by economic cycles, competition from shopping malls and big-box retailers, retail consolidations and -- most recently -- the internet and online shopping.
In an era of increasing challenges for small-business owners, creating successful retail environments has been shown to be more art than science. The transformation of Town & Country Village, for example, from a tired and uninspired center to the bustling retail hub it is today came about because a new owner carried out a successful plan for achieving a tenant mix that turned out right for the community.
No ordinance pushed them to achieve this make-over; it came about through skillful property management. Whether one likes or dislikes the "new" Town & Country Village, developments like this show that even with all the challenges facing retailers, the right mix of stores, restaurants and offices can create a winning formula.
But translating this success to commercial districts where there are multiple building owners competing for tenants is a vexing problem. Every owner has different financial objectives, time horizons and levels of concern for the overall health of the shopping district. Some are quick to adjust rent levels during economic downturns. Others opt to keep rates high even if it means a space remains vacant for months or years. Most have little retail leasing expertise or leverage to attract top quality stores, as privately owned and managed shopping centers have.
In Palo Alto, the city's attempts to preserve ground floor retail has a long and complex history.
City planners and policy makers in the mid-1980s initially created restrictions in the core downtown area that prevented the conversion of retail ground-floor uses to offices and have eased or tightened them as economic conditions changed.
Two years ago, concerned about the continuing trend of retail closures throughout the city, the City Council adopted an interim citywide urgency ordinance that prohibited retail and "retail like" uses from converting to non-retail uses. That interim ordinance will expire at the end of April, and the council Monday night is scheduled to review a replacement ordinance that is aimed at keeping controls in place but loosening the definition of "retail" to give property owners more flexibility.
For example, the proposal allows personal training and small fitness or yoga studios in store fronts. (One need only look at the fact that California Avenue now has two new gyms occupying large prime store-front space to recognize why this is a bad idea.)
One of the root problems is that office, medical and some service uses command a much higher rental rate than retail, so if left to the free market, non-retail uses would begin proliferating in our commercial districts as long-term leases expire and owners seek to maximize their financial return.
Property owners and leasing companies bristle at regulation and argue that nothing kills off a retail environment faster than the vacant store fronts that current rules can create. They advocate for the loosest possible restrictions on use and limiting them to the core commercial streets, such as University Avenue and California Avenue, so that retail is concentrated.
Everyone can agree that vacancies in a business district are harmful and detract from the ambiance that attracts shoppers. But property owners in Palo Alto generally understand and accept that locating offices on the ground floor is as bad as store vacancies in disrupting a shopping environment, so the debate centers on how to regulate what is and isn't allowed.
While we support the continuation of the current interim restrictions on ground-floor uses, we don't for a minute believe that they are the answer.
Instead of thinking that ordinances can be regularly tweaked to shape and control the tenants on traditional retail shopping streets, the city needs to aggressively invest its efforts toward bringing together property owners, current ground-floor tenants and property managers with retail experts who can create coordinated ground-floor leasing strategies. Outreach by the city to the business community to date has been woefully inadequate.
The city should be filling its vacant economic-development director position with an expert on retail leasing who can support this effort, and it should be looking for models elsewhere (Los Gatos and Burlingame are good examples) for how other cities have supported and achieved vibrancy in their shopping districts. Just as privately owned shopping centers use financial incentives to attract key anchor tenants, the city should also explore how it might work with property owners to provide such incentives.
There is no easy fix to the trends that are causing traditional retail to leave our shopping districts, but the city needs to look beyond regulation for the solutions.