By just about any measure, it's been a grim year for Palo Alto's retail community, with businesses all over the city losing money, reducing hours and closing up shop altogether.
City staff have identified at least 50 sites that, until recently, have been occupied by popular establishments such as Chipotle on El Camino Real, Lemonade, Tam Tam, Antonio's Nut House and Dan Gordon's, but that now stand empty. At Town & Country Village, long one of the city's most vibrant shopping areas, the vacancy rate has climbed from about 6% to more than 20% during the pandemic, according to Jim Ellis, whose company Ellis Partners owns the center.
The City Council acknowledged the deep challenges facing the retail sector on Monday night, as it debated and agreed on several measures to help businesses stay afloat during the economic slump. During a wide-ranging discussion, council members voted to keep California and University avenues closed to traffic until May 31 and generally supported the idea of hiring a consultant who specializes in economic development to help guide the city's retail strategy.
The council was less keen on moving ahead with more long-lasting changes to the city's retail rules, including relaxing the zoning code to allow a broader range of businesses to fill buildings designated for retail. One such idea would expand the city's definition of "retail" to include businesses such as banks, law firms and medical offices. Another would remove or modify an existing zoning law that requires ground-floor retail in commercial areas throughout the city.
With little consensus on these issues, the council directed its Planning and Transportation Commission to study ways to diversify retail uses and consider modifications to the ground-floor retail protection law. The key question that it will focus on is: Should the retail requirement apply citywide, as is currently the case, or exclusively to commercial cores such as downtown and California Avenue?
As in the past, the council split into two camps on retail protection, with some urging caution and others counseling aggressive action. Mayor Adrian Fine and council members Greg Tanaka, Liz Kniss and Alison Cormack all supported changing rules to allow for more flexibility for commercial sites. This includes expanding the definition of "retail" and allowing certain types of businesses that currently have a conditional use permit to open up as permitted uses.
Vice Mayor Tom DuBois and council members Eric Filseth and Lydia Kou all voted against having staff return with proposed change that would broaden the definition of retail and allow more offices. All three stressed the potentially permanent impacts of the proposed zone changes. Once an office occupies retail space, even purportedly on a temporary basis, it is unlikely to move out, even when zoning changes, they pointed out.
"If we loosen this, we're only going to allow the rents to continue to stay high," DuBois said. "I think we should continue with our retail protection ordinance until we have more data — and more nuanced data."
Cormack agreed that the zone changes could have long-term effects but said that given the magnitude of the economic downturn, she is willing to be more flexible on uses.
"It's an inflection point," Cormack said. "That means it's appropriate for us to make some changes."
Kniss suggested that the city needs to streamline Palo Alto's permitting processes for businesses looking to make improvements.
"I think we need to dispel the notion that Palo Alto doesn't really want certain things and therefore drags their feet in the development department," Kniss said. "I think it's important that we work at changing whatever reputation we have that is out there, saying this is a tough city to do business in."
Council members voted unanimously to direct the Planning and Transportation Commission to evaluate ways to diversify use of retail spaces. They also voted 6-1, with Kou dissenting, to direct the commission to explore changes to the ground-floor protection ordinance, a topic that has consistently divided the council. As in the past, Fine argued that the ordinance should not apply citywide. Others balked at moving ahead with the change but agreed to let the commission consider possible changes, including a more limited geography for the ground-floor retail requirement.
Tanaka also lobbied for a nimbler approach. A CEO of a company that specializes in retail analytics, Tanaka cited broad national trends that have made the environment challenging even before the pandemic — most notably, the large number of retail locations in the United States. He also noted that the businesses that have thrived during the pandemic are big-box stores such as Costco, Walmart and Home Depot. The types of small, specialty stores that are predominant in Palo Alto are precisely the types of retail operations that have taken the biggest hit.
"It's the retail that we love in our city but it's exactly the kind of retail that's been totally hammered overall — not just in our city but in all cities," Tanaka said.
Ellis agreed. To cope with the growing vacancies, Town & Country is preparing to ask the council to allow it to devote 20% of its ground-floor space to medical offices. The proposal would also permit the shopping center to fill 30% of its space with offices.
"The fact of the matter is that the pandemic has accelerated trends that are already underway, which has significantly impacted retailers." Ellis said. "There are far fewer of them and the average size of retail use is much smaller."
But many residents and some merchants strongly opposed revising the definition of "retail" or allowing more office use in retail areas. Jessica Roth, owner of The Cobblery on California Avenue, said she has great concerns about the proposed zone changes, which she argued could change the character of the eclectic strip.
"We need to add public art to these areas, we need to make them more community-friendly, not have office spaces and doctor's offices," Roth said. "I really hope you will strongly think about this. Something you do now will impact our businesses for generations, decades to come."
The council was more unified when it came to extending the street closures on University and California avenues, authorizing staff to modify the design of the program. While DuBois supported reopening parts of University Avenue to cars to support retailers along the strip, the rest of the council voted to keep both streets closed until May 31. Kniss said the extension would make it easier for restaurant owners to invest in their outdoor-dining amenities, including heating and rain protection. Others, including Cormack and Fine, noted that the program has been extremely popular with residents.
"I think this is one of the silver linings of 2020 … in this hard year we've been through — reimagining what our two downtowns can look like," Fine said shortly before the 6-1 vote.