The Case for Small Commercial Spaces
July 5, 2018

Visit any successful urban area and you will see that small businesses are the neighborhood’s bread and butter. These are not just retailers selling goods to end users, but a wide variety of commercial uses that make up the market of a city — dental surgery clinics, print shops, legal offices, smoke shops, shoe repairs, flooring supplies, custom jewelers, etc.

Small commercial tenants along the street in Brooklyn.

It is easy to observe that, outside a few retail centric areas, small commercial establishments outnumber large commercial establishments. These small commercial spaces are important for incubating local businesses (that often do not need or can not afford a larger space). Incubating and supporting small businesses is important because they are the best job creators, they serve as a tool to reduce wealth inequality, and healthy capitalism requires new players constantly entering the market. Small commercial spaces are important.

Let’s take a look at the new stuff that gets built today. The typical shiny, new mega-development in the New York City area where I live is a large mixed-use building with a parking garage. Some percentage of the hundreds of units are designated “affordable.” They get marketed as “luxury living” always “minutes away” from Manhattan (but they never say how many minutes...15? 60?) They also usually have some large form of retail space on the ground floor too. Unless the developer signs on with a big tenant while under construction (such as Hoboken’s Trader Joes) it is not uncommon for retail space to sit vacant for years.

A new building in Hoboken with the ground floor retail (2,000 to 25,000 square feet) sitting vacant.

Based on my anecdotal experience with talking to people who interact with small and young businesses, there is a lot of interest in affordable small commercial spaces, yet when they talk to the management companies holding on to the large vacant retail space, they get two responses: 1) The landlord/owner is reluctant to subdivide large spaces and would rather hold out for the big tenant, or 2) The landlord/owner has smaller spaces available but would rather hold out for established businesses with a proven track record to pay rent (which crosses out young businesses and favors national chains and franchises with a proven formula).

This creates two issues:

  1. It favors the big chains and franchises — what I like to call "copy-and-paste towns." What joy is there in visiting different cities or even just different neighborhoods in the same city if they always contain some combination of Starbucks, Chipotle, Walgreens, Best Buy, TJ Maxx, and a Bank of America branch? (You could insert a rant here about American cities turning into a sterilized monoculture from coast to coast.)
  2. You end up with streetscapes of vacant storefronts until the big chains come.

Vacancies are not bad. A natural market should slightly oversupply. This is why on a whim you can go to the grocery store and buy an apple even if you do not normally eat apples. You did not have to tell the grocery store (who then tells their supplier) ahead of time to order an extra apple, you just assume the grocery store overstocks their shelves with apples that you are almost guaranteed to have an apple when you want one.

In the same sense, a healthy economy will always have some small percentage of vacant units (residential, commercial, or otherwise), so there is always a space available if you are looking for a place to live or to establish your office. But we've got a serious issue when there are storefronts sitting empty for years holding out for the big tenant while small businesses cannot find any space to rent.

Jersey City tried to tackle these problems by restricting the number of “formula stores” (chain stores and franchises that follow a set formula) in certain areas. Then Krispy Kreme found a loophole. I would prefer that we try to look into the causes of this rather than tack on even more rules.

Part of the problem is the consolidation of ownership of land in our city into the hands of the few. This has resulted in barriers to development and redevelopment that are so onerous, only the large developers with teams of lawyers and enough cash on hand to take big risks can participate. (As with much of America, our zoning code is so thick that incremental intensification or modification by existing property owners is virtually non-existent.)

Thus, large owners can afford to hold out on rent for years, with the long-term bet that eventually, the perfect big, established tenant will come along. Meanwhile, small owners have bills to pay and want to find a tenant quickly. If we want to make it easier for small businesses to secure storefront space, we should really talk about zoning reform and encouraging (through zoning, financing, etc.) small developers and small developments.

In the meantime, one option that some large developers have gone with is to build in "faux-granularly" by dividing the ground floor into many small spaces. The best examples of faux-granularity allow the ground floor tenant to customize the facade, so it’s obvious from the street when you transition from one store to the next. This is good for walkability because the rapidly changing facade rewards your brain as you exert energy to walk, so it feels less exhausting than walking past an unchanging or repeating facade.

A good example of faux-granularity in Manhattan, where every retailer has the option to customize their front facade.

A bad example in Hoboken. Although it looks a little prettier in summer with the foliage, the repeating brick facade and lack of customization makes it hard to tell where one store ends and the other begins.

In the past decade or so, American cities have also started to embrace start-up food culture by legalizing food trucks and the appearance of food halls (much like a food court but they favor local vendors over chains.) In a society where chain stores and franchises dominate, an area full of local and unique vendors tends to attract a lot of visitors. We ought to embrace the same for non-food businesses. In other cultures, bazaars and marketplaces where anyone can participate are much more common.

DeKalb Market Hall is a food hall in the basement of the City Point Shopping Center in Brooklyn.

Finally, many cities also offer low-cost co-working spaces or shared offices which is perfect for small businesses that just need desk space and a meeting room.

It is important for our cities to offer commercial spaces in a variety of sizes and price points for a healthy economy that encourages small businesses and job and wealth creation.