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Seeking to stem the economic damage from the COVID-19 pandemic, Palo Alto is weighing a measure that could shake up the local retail scene: allowing banks, law firms and other office uses to replace shops and restaurants in many parts of the city.
The proposal, which the City Council will consider on Nov. 9, would modify the city’s definitions of “retail” and “retail-like” uses to encompass medical offices, educational uses, banks, law firms, accounting firms and real estate agents, among other types of offices. It also calls for imposing size limitations on these office uses to make sure they don’t occupy too much space in commercial corridors.
In addition, the council will consider another zoning change that would suspend an existing prohibition on converting ground-floor retail spaces to other uses when a property gets redeveloped. While downtown, the California Avenue business district and other key commercial areas (including Town & Country Village, Stanford Shopping Center and a segment of Middlefield Road in Midtown) will retain their ground-floor retail requirements — albeit, with an expanded definition of “retail” — property owners in other parts of the city would be allowed to shift from retail to the more lucrative office uses.
If approved, the changes would represent a dramatic shift of direction for the council, which has enacted numerous laws over the past five years to protect retail establishments from office conversions. In 2015, the council responded to conversions of downtown eateries and retailers — including Zibbibo, Rudy’s Pub and Jungle Copy — to office spaces by passing an emergency law banning conversations of ground-floor retail. Two years later, a divided council moved to make the retail-preservation law permanent, despite arguments from developers, business leaders and some council members that the law is too broad.
Now, the three council members who dissented in the 2017 vote — Mayor Adrian Fine, Liz Kniss and Greg Tanaka — will have a chance to scuttle that law just before their terms conclude. Fine has opted not to run for reelection; Kniss is concluding her second and final term; and Tanaka is now running for a fresh four-year term.
The council signaled its desire to reconsider the office protection during a broad-ranging discussion on Sept. 15 about ways to support local businesses at a time when many have seen crippling losses because of the pandemic and Santa Clara County’s shelter-in-place orders. The city has tried to alleviate some of the damage by offering grants to small businesses, closing University and California avenues to traffic to facilitate outdoor dining and streamlining the approval process for parklets and sidewalk tables.
Among the decisions that the council will consider on Nov. 9 is whether to keep these commercial stretches car-free until the end of the year, as current plans call for, or to extend closures until the end of March.
While the city has plenty of leeway to shift gears when it comes to street closures, other changes in the new recovery plan would be harder to reverse. The planned modification of the ground-floor preservation law, for example, is intended to provide temporary flexibility to property owners at a time when the retail sector is struggling. Even so, staff and council members acknowledged during their Sept. 15 discussion that once an office use gets established at a retail site, it would be able to retain this use indefinitely.
A new report from the Department of Planning and Community Services doesn’t specify the duration of the proposed zone change to eliminate retail protections. It notes, however, the challenges of allowing land uses on a temporary basis.
“A tenant would need some assurance that the use could continue for as long as it occupied the site or for some reasonable period of time,” the report states. “This may also limit the transferability of leases and may create confusion about the ability of other future uses to occupy the same tenant location.”
The report notes that establishing a program that would allow land uses on a temporary basis would be “problematic” to administer and can lead to “property owner and tenant frustration after the temporary allowance has lapsed.” Allowing uses on a permanent basis, meanwhile, “expands the opportunity for a greater exchange of retail and retail-like uses within retail preservation.”
While the zone changes are being proposed as part of Palo Alto’s pandemic response, some supporters of the move had advocated for changing the retail-protection rules long before the pandemic. Fine had long maintained that a citywide ordinance requiring ground-floor retail is far too broad. During the Sept. 15 discussion, Fine called the council’s passage of the 2017 law a “poor move” and recommended a temporary suspension of the rule. Some commercial sites, he argued, just aren’t well suited for retail.
“There are a number of sites outside of (the commercial core areas) that were not naturally retail, that we waived the requirement for and that remained vacant,” Fine said. “In this economic environment, we should be looking at temporarily suspending that ordinance outside the retail cores.”
Others on the council strongly opposed the move. Council member Lydia Kou, who is also seeking a fresh term in the Nov. 3 election, joined Vice Mayor Tom DuBois and Council member Eric Filseth in expressing opposition to the proposed suspension of retail-protection rules. The three council members, who make up the council’s slow-growth wing, all supported the 2017 retail protections and voted on Sept. 15 to not move ahead with the proposed repeal.
“COVID aside, demand is going to come back one of these days,” Filseth said at the meeting. “Temporarily suspending retail — that’s not temporary.”
Kou also said she is concerned about the permanent impacts of the proposed policy change and the potential of office uses, which fetch significant more rent, to replace retail.
“We’re letting property owners dictate to us what they’re looking for on their site versus what we want our city to become,” Kou said. “I don’t think it’s right to do it that way.”
The city’s planning staff, meanwhile, suggest in the new report that Palo Alto can actually strengthen the overall business environment by focusing retail on the core districts of downtown, California Avenue and the Midtown shopping area and by giving other neighborhoods more flexibility to switch to other uses. Requiring retail preservation throughout the city, the report states, “may dilute the vibrancy and viability of retail areas and ultimately harm the overall retail environment.”
Requiring retail preservation only in the core areas, the report states, would allow the city to “ensure these areas remain vibrant, pedestrian-focused retail areas that provide a sense of place and identity in Palo Alto.”
The report notes that while some industries have been able to adapt to the current conditions, many retailers have been “severely challenged” and, in many cases, forced to cease operations permanently. That point was underscored at the Sept. 15 meeting by Jim Ellis, whose firm Ellis Partners owns Town & Country Village. The vacancy rate at the shopping center spiked from 6% to 7% before COVID-19 to 15%, with recent closures of businesses such as Mayfield Bakery & Cafe and Patrick James.
Ellis told the council that he expects the rate to climb to around 20% to 25%.
“Many tenants are still up for the challenge,” Ellis said. “I have to be honest, there are tenants who are having trouble finding the inspiration and energy to try to operate through this environment.”
Now, the shopping center is requesting zoning exemptions that would allow it to convert 20% of its ground-floor space to medical office uses and to allow up to 30% of its total space to be office uses. That 30% would include both the new ground-floor medical offices and existing office uses currently at Town & Country above the ground floor.
The council will consider the request from Town & Country as part of its Nov. 9 discussion of retail preservation.
Hmm. Seems like a good time to invest in commercial real estate. To whom do I send my money?
Don’t do it
During an earlier downtown landlords petitioned the council to be allowed to convert vacant retail on the downtown side streets to “temporary” office use for a few years. The council agreed, with I seem to recall the caveat that this would be for about four years. Once the economy came back, city staff would follow up and these spaces would revert to retail. Of course planning staff did not follow up. Perhaps lack of institutional memory or perhaps there was never any intention of these spaces reverting back to their original retail use.
This is a good example of why when planning staff propose what steps Casti has to take to minimize traffic, limit number of events, etc. etc. is meaningless because staff either lacks the resources, the will, or the memory to follow up on past condition agreements with property owners.
Shameful. We’ve already got “fake retail” downtown and now this. Anything for the landlords who willfully destroy family businesses like the former Prestige boutique in T&C by not letting them move back into cheaper EMPTY spaces during the last recession and what does the city do? Ignore all calls for help and then sends the most junior “Business Development” staffer / intern to their going away party attended by a few hundred furious customers. Needless to say it was the first he’d heard about it.
And what do they think this move is going to do to other struggling retailers there??
There are two sides to this coin…landlords seeking a ROI on their vacant retail properties & the visual blight of having a former retail shopping area inundated with offices.
In years past, we have witnessed a similar albeit different conversion in downtown PA & MV…specialty retail stores to innumerous restaurants & cafes.
No one seemed to care or complain about that ‘de-evolution’ of a traditional downtown shopping area.
Though it will make for a very mundane-appearing environment, perhaps this development/conversion is the next stage of suburban shopping district evolution.
With the pandemic & it’s related ‘non-essential’ retail closures, convenient online shopping options, and the hassle of parking these days, who needs to go downtown anymore other than to fulfill their gastronomic needs?
Besides…various retail store closures were taking place long before the pandemic.
Why? Because landlords were jacking up their rents & forcing older stores out to accommodate even more newer restaurants & cafes…many of whom have since folded.
A town that ‘lives to eat’ rather than eating to live must endure the consequences OR establish a ‘food court’
(the size of a Google complex) to accommodate a mass influx of finicky diners whose primary preoccupation in life is apparently trying to decide what to have for lunch or dinner.
Maybe the new office occupants will keep the remaining dining establishments alive…a symbiotic relationship of sorts.
What a sad loss for our City if this happens. So we’ll have more office space and more traffic, that retail won’t come back once it is lost – just watch. This is a sad consequence of our failure to build dense housing to support retail and service areas. University Ave is one thing but I also really fear for Cal Ave with it’s lack of surrounding density to support retail. I live in Palo Alto because of my ability to walk and bike to everything I need or want. Loss of integrity for our retail and services core area would be a real blow to our City. Don’t do it!
This 100% ill advised and not necessary.
Yes there are retail vacancies but there are also many office vacancies.
Please fill all the available office before harming our retail areas by allowing office on the ground floor.
There is no way to know that these will ever revert to retail. Office leases are usually longer term agreement. so doing this creates a practical and administrative headache as well regarding reverting to retail and existing leases.
This is a potentially permanent and devastating blow to our city and in no way responds to any emergency need.
100% hard pass, NO from this voter and resident. City Council members, if you vote for this, I’ll donate to and vote for your opponents in the next election.
Why offices? Profit for commercial real estate companies. Using the pandemic’s short-term impact to retail is a shameful excuse. Most office workers are not allowed back in the office yet either! So as soon as things get better (vaccine, treatment, etc) and we open more fully, there will be strong demand for retail again.
Our valued retailers, restaurants, and local service providers are currently in dire jeopardy. We need the city and residents to step up to support them through the recovery if we want them to survive.
That’s why the staff proposal is so bewildering. The proposal to allow office uses in formerly retail/service zones would HARM retailers and service providers while providing a financial bonus, now and after the recovery, for commercial property owners who have made hundreds of millions of dollars in windfall profits during the boom over the last decade.
Many of our most valued local serving businesses have been driven away by big rent increases in recent years. More moderate rents would enable more local businesses a better future.
The argument is false that these long-term changes are needed to support our office-based businesses. Vacancies are currently high in our many office zoned areas. We do not now need to EXPAND the areas zoned for offices.
So what should we do? First, retain our current groundfloor retail zoning in our core retail areas (the two downtowns, Town and Country, and neighborhood shopping centers, etc.) while providing city support for those businesses through the recovery. Second, we should evaluate loosening the definition of retail/services in selected areas outside of our retail cores to allow other local service businesses (such as local medical providers), but not offices for law firms, accountants, and other office uses that belong in office zones.
Changing our retail zoning will be semi-permanent. We should not let the current crisis be used as a backdoor excuse for expanding offices to the detriment of local services. It should be done thoughtfully and promptly, but not rashly. It must be designed for outcomes that will help, rather than hurt, the businesses that make up a healthy community.
Palo Alto, like the rest of the country, was overstored. Now, with COVID, it is even more so. Trying to force retail where it is not economic will put more pressure on the remaining struggling retailers. Who is going to fill the vacancies who will not destroy the profitability of the current stores.
“No one seemed to care or complain about that ‘de-evolution’ of a traditional downtown shopping area.”
We did care. We did complain. As usual, we were ignored by the pro-density, pro-landlord city staff, city council and planning commissioners eager to turn downtown into an office park because office rents are higher. So they pushed commuter parking into our neighborhoods, charged US for parking and allowed hotels without ANY parking because guests and workers all miraculously arrived there by osmosis. And of course evicted the President Hotel’s residents to make way for yet another luxury hotel.
When the commuters who out-numbered us 4:1 disappeared in the pandemic, they even considered charging US a dining surcharge. Of course those disappearing commuters don’t matter to our former CC members sitting on ABAG as they set ridiculous housing targets for us.
Council members willing to protect retail have always been outnumbered by a pro-development majority who pay lip service to those who live and (used to) shop here as council candidates when trying to get elected.
In particular beware of those with a very slender track track record of volunteering for our community, or none at all. Especially those who when asked specific questions hide behind such generalities as, “I don’t yet know enough” to avoid indicating where they really stand. That’s a real give away as to whose narrow interests they intend to represent if elected. Also revealed by their most generous donors who may or may not live in Palo Alto.
Palo Alto would be smart to require ground floor use to be public access – meaning retail, restaurant, museum or other business or service that allows public access.
Portland Oregon requires all ground floor (including parking garages) have this public access in order to keep their downtown vibrant, walkable and friendly. Portland also requires 3% of the buildings cost go to artwork to enhance the public art or building architecture.
Patrick Burt, you were in leadership here for 16 years so are to blame as much as anybody for our budget problems today — more than a $1 trillion in market caps of companies who had office space here – -including some downtown – during your terms on planning and council and as mayor and you refused to put in progressive business tax out of fear of riling the landlords, so don’t blame staff number one and don’t pretend that you are a new person.
Palo Alto cannot legislate retail shops into existence. Retail is dying nationally, and having a rough time here in Palo Alto. Pat Burt refers to landlords reaping hundreds of millions of dollars in windfall profits. However, there are mom and pop commercial landlords here who just want to fill vacant spaces, not reap big windfalls. There are places and spaces that simply don’t make sense for traditional retail. The definition of retail to include medical, some financial and other uses should be expanded in core commercial areas as well as outlying areas.
>”Palo Alto cannot legislate retail shops into existence. Retail is dying nationally, and having a rough time here in Palo Alto. Pat Burt refers to landlords reaping hundreds of millions of dollars in windfall profits. However, there are mom and pop commercial landlords here who just want to fill vacant spaces, not reap big windfalls. There are places and spaces that simply don’t make sense for traditional retail. The definition of retail to include medical, some financial and other uses should be expanded in core commercial areas as well as outlying areas.”
^ Spoken like a true real estate agent…any connection to the now defunct Cornish & Carry realtors who were absorbed by Coldwell-Banker?
There is far more to life than destroying the original character of a city’s downtown area (via exorbitant commercial square footage revenues) during the time of an economic downturn…unless money is all that one worships.
Just adding to my original comment here: If you shop at CostCo and buy your stuff online from Amazon or direct from the manufacturer, you are contributing to the death of retail. I try to patronize small shops wherever I can, and don’t belong to CostCo and never have, as a personal retail preservation measure. I would love it if there were a glut of small retail businesses looking for space. In my experience, that is not the case, probably partly because of CostCo and online shopping.
Mmm, $1.50 Costco hot dog & drink.
@Pete Cary
Commercial property owners have in fact reaped many hundreds of millions of dollars in WINDFALL profits over the last decade, profits exceeding normal returns on investments. Those profits accrued to mom and pop commercial landowners, as well as the big developers who own the vast majority of our commercial properties.
Average office rents in Palo Alto (for Classes A, B, and C offices) are currently $8.65 per square foot per month. That’s double the 2011 average and more than twice the average rate of $4.00 in San Jose, just 10 miles away and even higher than San Francisco.
Retail rates are lower than offices, although on average much higher in Palo Alto than elsewhere. That’s why changing our zoning to allow office uses to compete with retail will further drive away retailers and local service businesses that can’t afford to pay what office tenants pay.
We have been seeing changes to our retail patterns that are being compounded by the pandemic. Many of our valued retailers, service businesses, and non-profits were driven out of town in recent years by huge rent increases, far exceeding rates of inflation. In recent years, service-oriented businesses (restaurants, exercise businesses, personal care, etc.) have replaced many of our retailers and that trend will likely continue. That’s why we should be open to a balanced approach of loosening the allowed types of services (such as local medical care) in designated retail zoning areas, but not in our core retail zones like our two downtowns and Town and Country.
We should support our community servicing businesses by patronizing them and through reasonable zoning modifications that will support their vitality, but we don’t need to turn our retail areas into quasi office parks to do that.
Stores and retail shops serve the local community. Increased office and industrial space, which is much higher employee density per square foot as compared with retail space, creates traffic, congestion and housing shortages as more people want to crowd into Palo Alto to live closer to work. Palo Alto should be first and foremost a residential community, not a mixed use industrial park.
Let’s remember that resident-serving businesses include not just stores but also service businesses that can’t easily go online like cobblers, cleaners, hair or nail salons, tailors/seamstresses, car mechanics and framers, and professional services like doctors, dentists, insurance agents, accountants, eye doctors, vets etc etc.
The rents some of these businesses are paying is outrageous, esp. since many are/were renting in OLD buildings presumably paying low taxes. I really resent losing trusted service providers I’ve been with for decades and having to drive more to get a new service I can only hope is comparable.
The pandemic is going to hammer rental rates for a few years. If that unleashes a flood of small shops and services I will be pleasantly surprised. There’s also the matter of competition – how many cleaners, salons, nail shops, can you have in a small business district? How many can survive? My argument is for relaxing the restrictions a bit, by allowing for professional services. I see Mr. Burt is too. Great.
The pandemic is hammering all types of businesses short term, but it will decimate over leveraged property owners long term (particularly in California if prop 15 passes). Betting on office tenants to infill the loss of retail tenants is a foolish strategy both short and long term. Companies large and small are reorganizing the way they work and real estate is and will continue to become a smaller part of their business plan. I’m not sure what the plan should be or what the end game is, but it is not going to be pretty for all involved.
PA has 2 business districts and multiple shopping centers and professional buildings, all with formerly sustaining businesses so clearly there is/was a need.
Anecdotally, my trusted PA framer closed permanently during the pandemic and the new one in Menlo Park was packed. Why? Because So many of their competitors closed and they’re lucky with their landlord — unlike 3 other favorite businesses on Santa Cruz Ave who couldn’t sustain monthly rents of $15K, $20K and. #25K
Scared San Francisco landlords are reducing gents by 30-40% to keep tenants. Why can’t/won’t our PA local landlords do the same, esp. since many of the buildings are old with presumably low taxes?
As the primary shopper in my family, I can tell you this community is not “overstored.” I find myself increasingly traveling much longer distances to buy things. This really bothers me. It wastes my time and fossil fuel.
I run a household and family in addition to working full time. I frequently have to make unplanned purchases for social events, home repairs, car maintenance, I was so relieved when ACE Hardware opened on “Charleston. I now have a hardware store close by that I can run to for fast purchases of parts. The ONLY sewing store in the area, closed this year. Now I have to travel to Redwood City for decent fabric and thread and other sewing notion selections. A recent car repair also took me to Redwood City–a 25 minute drive each way.
We have no good local toy stores any more. I have to travel to buy decent toys on short notice for gatherings and parties. (It takes too much time to order online and wait for delivery, and when stuff comes it’s often poorly made plastic crap that has to be returned.) I absolutely HATE shopping online. I appreciate good quality. I like things that are made well to last. Most of what is available online is junk. It is very difficult to discern quality from a photo. Clothing, food, furniture purchases are better made in stores where one can see the materials and construction, colors.
Please, Council, don’t make a bad situation worse. I agree with what Pat Burt said above. A balanced approach that protects what little retail we have left makes sense.
The staff proposal only benefits property owners who, frankly have been bleeding local retail dry (and local shoppers because increased rents have driven local prices up) dry for years. They will be better able to do that in the future if retail has to compete with office use.
I expect this from Mayor Fine who regularly expresses his disdain for our community, but CM Kniss, if this fiasco is your swan song, you will not be remembered well. Tanaka, I am watching you, and my vote will hinge on this.
“I expect this from Mayor Fine who regularly expresses his disdain for our community,..”
Not only for the community but for the current CC members, cc candidates and the whole democratic process acording to a 10/22 article in the SJ Merc.
https://www.mercurynews.com/2020/10/22/palo-altos-five-newcomer-council-candidates-seek-to-bring-novel-perspectives-to-the-council/
” In an interview, Fine said he chose not to run again because “there is no one I would like to serve with”, pointing to his past years of experience with council colleagues and the slate of candidates seeking open seats. “
My first reaction was, no! And having with the comments I can see there is a lot of nuance, I wonder what the current retail owners would say? Has anybody done the survey? Generally, Pat Burt’s comments seem reasonable and best of all I Ilike the suggestion to follow what they are doing in Portland. I am sure we all miss the retail that has left over the past decade especiallyCongeon and Crome. no office supply store has come in to replace that and I hate going to Office Depot and try to avoid that.I should say I can buy whatever I need at Walgreens but Cgdon thenwas such a unique store with high-quality in diverse merchandise and such knowledgeable staff! Can individual properties be evaluated separately rather than a blanket rezoning? Or is that just too complicated?
Palo Alto City Council — do not make it easier for offices to take over retail space. Developers should stop complaining. They can lower their rents to help their retail tenants weather this storm. We will have a vaccine eventually. Until then, developers and landowners should share the pain. Let’s all help keep Palo Alto retail healthy and diverse. Order your books through Books Inc. in Town & Country rather than buying them on Amazon. Tip a little more than usual to help the workers make ends meet. Let’s all help Palo Alto stay the Palo Alto we love.
Mayor Fine, Liz Kniss, Alison Cormack and Greg Tanaka want to impose a sea change of zoning from retail to office to please their supporters. They are posing as being helpful to increase revenue. Please take a walk downtown and look at the vacancies for office space. So many start ups have fled. We do not NEED office space at this time. The contingent of four are making a fatuous argument and hiding behind the pandemic. If retail zoning is abolished on the ground floor it is NEVER coming back. Retail is part of the fabric of our community. Landlords need to support their tenants and give some reduction in rent. We all have to share in the pain.
@ Pat Burt. Thank you for your thoughtful analysis and response on this issue. As always, it demonstrates your valuable experience and deep understanding of the city’s issues at large. That’s exactly why my entire family voted for you.
Mistake. BIG mistake.
Downtown Los Altos = gem.