Every day, brick-and-mortar shops along Palo Alto's main commercial strips engage in a life-or-death battle against online retailers, big-box stores and shopping malls.
But in passing its new "retail-protection" law early Tuesday morning, the City Council was mainly focused on a competition from a different source: offices that encroach into the retail districts and take over spaces that had previously been occupied by stores. To address this trend, the council passed an ordinance that prohibits the conversion of ground-floor retail to office use.
The new law largely mirrors and replaces the "emergency law" that the council approved in 2015 and that is set to expire in April. In passing that law, the council was responding to the recent conversion of downtown mainstays such as Fraiche Yogurt, Jungle Copy and Zibibbo to offices.
The Tuesday decision followed a long, vigorous and wide-ranging debate and an outpouring of opposition from local developers and the Chamber of Commerce. Ultimately, the council voted 6-3 vote -- with Vice Mayor Liz Kniss, Councilman Adrian Fine and Councilman Greg Tanaka dissenting --- to approve an ordinance that prohibits the conversion of ground-floor retail to office use citywide, modifies the definition of "retail" in the zoning code and makes provisions to allow an existing private school to continue operating on Alma Street.
For supporters, the ordinance is a needed tool to address the disruption caused by market pressures. Councilman Eric Filseth, who made the motion to approve the permanent ordinance, noted that offices pay far more per square foot than retail.
"Retail is very, very important for this community," Filseth said. "It's a very important part of our DNA in Palo Alto.
"It's under a lot of pressure and I think the goal of this ordinance is to manage one of those pressures ... If we want to have retail in town that we need to be active in this area."
The council's vote included more than a dozen amendments, some focusing on specific sites with marginal retail potential and others pertaining to lobby sizes; whether to mandate window transparency, which received a no vote; the question of whether to allow laundry facilities on University Avenue, which received another no; and the question of whether automotive-service stations should be considered "retail like" uses, which again resulted a no vote. The ordinance also creates a separate set of rules for downtown, with a looser definition of "retail" applying to peripheral areas, where yoga and dance studios will be allowed.
Even though the council ultimately voted to approve the ordinance, some members questioned whether it's necessary at all. Their frustrations channeled those of the Planning and Transportation Commission, which voted 4-2 to support the ordinance but only after several members signaled their frustration with its broad approach.
A large group of developers and property owners had no such ambivalence. One after another, they called on the council not to require retail in areas that may be better suited for other uses. Developer Charles "Chop" Keenan, whose downtown projects include HanaHaus, Aquarius Theatre and Whole Foods, told the council that "retail by mandate will not fill the space, in light of the current internet and big-box environment." He also noted that with the current mix, tax revenues from downtown retail have been growing every year since 2009.
"The downtown ordinance is a classic solution looking for a problem," Keenan said.
The Chamber of Commerce similarly panned the proposal, which adds several parcels to the downtown zone where ground-floor retail is required, stretching the zone west to Alma Street and south to Hamilton Avenue. Chamber CEO Judy Kleinberg urged the council to compress, rather than expand, the retail zones and to make them pedestrian-friendly. The close proximity between retailers is what makes malls work, she said.
"Our retailers are having a tough time competing with online," Kleinberg said. "I think this Christmas season was the first time that online sales outdid regular retail."
The Chamber also submitted a letter opposing the new restrictions.
"Stringent requirements that don't take into account the realities of today's commercial buying environment make it increasingly difficult for retail businesses in our city to compete with the increasing popularity of online vendors that are free of those restrictions," the letter states. "The more restrictions on in-store retail businesses, the less competitive they become."
Some council members agreed. Councilman Adrian Fine said he doesn't believe the council would "help the retail environment by adding more requirements or restrictions on businesses at this time." Councilman Greg Tanaka called the new law "half baked" and "generic." And Kniss, who supported the emergency measure in 2015, took a difference stance Monday night.
"I think this is an overreach when we try to include the whole community in one specific ordinance that is so precise that we can't even decide what size a yoga studio should be," Kniss said. "I just cannot vote for an ordinance where one size fits an entire community of 65,000 people and their businesses."
But while opponents argued that the ordinance is too broad, supporters countered that it's in fact quite narrow. Downtown buildings that currently don't have ground-floor retail will be able to continue as non-conforming uses under the new law. And the new definition of "retail" is broader than the prior one, which consisted of a laundry list of examples. Now, it will be defined as a "use open to the public during typical business hours that is predominantly engaged in providing retail sale, rental, service, processing or repair of items primarily intended for consumer or household use."
Councilman Tom DuBois called the new law "a strong step in the right direction to allow a much greater variety of retail."
"What we got in this ordinance is a much more flexible definition of retail than we had before," DuBois said. "This ordinance allows those kinds of things where in the past they might not be allowed."