Should ground-floor use go from retail to housing?

In San Francisco, the closing of once-popular San Francisco restaurants and the decline of longtime Union Square pillar Macy’s raise a question: Have the fundamentals of urban retail changed?

If the answer is yes, San Francisco could move to reduce retail requirements in new housing developments while adding badly needed housing, which would represent a dramatic change in “best practices” for urban neighborhoods.

Jane Jacobs’s support for mixed-use development with “eyes on the street” has long been seen as the best urban design strategy, but this vision assumed that the retail under housing could be rented. What if it cannot? Or, what if the only market for these retail spaces are for offices closed on evenings and weekends? Such uses do not offer the ongoing street activity that created Jacobs’s famed street “ballet.”

As San Francisco and other large cities combat their housing shortages, the requirement that ground-floor space under housing be for retail should to be open to debate. We may conclude that the city should not be giving up housing units for retail spaces that are not wanted or needed.

National Trend

An intriguing article out of New York City found that despite the economic upturn, vacancy rates are up in every Manhattan retail corridor. Some argue that unlike past downturns, this one is not cyclical. Brokers believe that “brick-and-mortar retailers will shrink dramatically during the next few years, so supply of retail space will outweigh demand for it.”

I recall that over a decade ago, Berkeley Daily Planet Editor Becky O’Malley questioned whether Berkeley had too much retail in light of people’s shifting purchasing activity to the internet. Urban America’s buying habits have shifted even more dramatically since that time, raising questions as to whether it’s time to rethink the popular model of mixed-use development.

Like nearly everyone else, I prefer the look of mixed-use streets. I bemoan the Tenderloin’s unusual lack of mixed-use housing, despite challenges finding quality tenants for existing spaces. Jacobs was correct: mixed-use streets are more interesting, and have more energy and foot traffic.

So before we give up on mixed use, let’s consider how San Francisco and other cities can maintain successful retail in an online world.

A Sense of Community

Restaurants, bars, and entertainment venues offer something the online world cannot easily duplicate: a sense of community. Watching a musical or theatrical performance on a computer screen won’t have as big an impact as watching a live performance. And you can’t get a latte or a bottle of whiskey delivered to your door minutes after ordering it online.

I actively try to recruit retail in San Francisco’s Tenderloin, and restaurants, bars, cafes, and entertainment venues are the only businesses that have ever thrived. I explain in my book, The Tenderloin: Sex, Crime and Resistance in the Heart of San Francisco, even in the neighborhood’s boom years that ended in the 1950s, the Tenderloin never had many neighborhood-serving businesses. It never had a successful clothing, hardware, or full-fledged grocery store. The neighborhood once had used book stores, a record store, and a sporting goods store, but they are long gone.

Nearly all new Tenderloin businesses are restaurants, bars, cafes, or nonprofits that are not dependent on a local paying customer base. The few relatively new clothing and retail stores are the clear exception.

It seems that all of the San Francisco streets that have been transformed in the past decade—such as Valencia, Divisadero, and Hayes—saw the process driven by this type of business. New condos and other types of retail played a part, but the visual look of the streets changed most due to the core internet-immune retail businesses.

Cities Must Help

In the non-gentrified neighborhoods that struggle to attract and maintain non-food retail business, city assistance is essential. San Francisco’s Office of Economic and Workforce Development operates an Invest in Neighborhoods program that offers up to $75,000 in city assistance to qualifying new small businesses. Technical assistance from city staff is invaluable, but attracting non-food retail to ground-floor commercial spaces often requires actual financial city assistance, that’s why San Francisco’s Legacy Business program also includes grants. Even longtime successful businesses need help in the current economic environment.

City staff must also provide a reality check for landlords seeking retail tenants. Many have a grossly inflated valuation of their space that results in long-term retail vacancies. These vacancies create a negative retail climate that makes others hesitant to enter.

The mid-market neighborhood was long plagued by owners leaving spaces vacant while they held out for higher rent. I’ve seen spaces in Berkeley where the longtime retail tenant was forced to move after a steep rent increase only to have the space remain vacant for years.

Flexible Approach

For all that the city can do, it may be time for planners and city officials to take a more flexible, reality-based approach. The days of “if you build it, a retail tenant will come” appear to be gone.

The former Market Street Place (now 6 × 6) described by JK Dineen in the San Francisco Chronicle as “the biggest and most ambitious retail development in San Francisco since the Westfield San Francisco Centre expansion” a decade ago remains without a tenant. When a beautiful new development like this cannot easily get tenants, think what that means for those trying to rent other non-food retail in the same area.

Should San Francisco bite the bullet and accept that the city needs housing more than new retail, and that online shopping makes requiring retail in new developments not worth the housing loss?

Planners and/or supervisors need to convene a public meeting to discuss the ground-floor use issue. One idea is to allow developers to split ground-floor space 50-50 between retail and housing, so we get some eyes on the street without sacrificing needed units. As developers are being asked to pay steeper inclusionary housing fees, allowing additional ground-floor units could further a compromise.

With thousands of housing units in the pipeline, now is the time to have this conversation. San Francisco should not be giving up desperately needed housing based on a past vision of mixed-use success that today’s online buying has undermined.

[A version of this post originally appeared on beyondchron.org]