News Press

Partnership: Caps and controls on commercial rents are not the solution to small business woes

September 17, 2021


Katy Feinberg

Today, the Partnership for New York City submitted the following testimony in opposition to New York City Council bills Int. 1796 and Int. 2299.

Thank you Chair Gjonaj and members of the committee for the opportunity to submit testimony on Int. 1796, which would create commercial rent stabilization, and Int. 2299, which would create requirements for storefront leases. The Partnership for New York City represents private sector employers of more than 1 million New Yorkers. We work together with government, labor, and the nonprofit sector to maintain the city’s position as the preeminent global center of commerce, innovation, and economic opportunity.

The Partnership opposes both bills. The city’s commercial real estate market is in turmoil. This is not the time to be passing laws that could delay and distort its recovery from the impact of the pandemic and the acceleration of e-commerce. Storefront and other commercial vacancies and rent arrears are high and the survival of many small business tenants remains unpredictable. In most cases, where these businesses are viable, property owners are making accommodations in rent. This process needs to play out before government can intelligently intervene.

A 2020 study by the New York City Department of City Planning (DCP) found that commercial vacancies are concentrated in certain neighborhoods. For example, DCP reported that local retail corridors such as Kingsbridge, Jackson Heights and Hamilton Heights had a higher proportion of occupancy (all over 70%) than regional destinations and areas impacted by remote work and cessation of tourism during the pandemic such as Flatiron/Union Square, SoHo/NoHo and Canal Street with occupancy of 40 to 50%. The Meatpacking district had a 29.7% vacancy rate compared to 10% on the Upper West Side in the second quarter of 2021.

The 2020 DCP study also concluded that many factors influence commercial vacancies including online shopping, changes in demographics, and local real estate trends. Increased costs of doing business – often a result of city mandates and regulations – are often greater factors than rent in determining the viability of a small business.

Placing caps or controls on commercial rents will have the greatest negative impact on small property owners who the city relies on for property tax revenues and, in the case of mixed-use buildings, as a source of relatively affordable rental housing.

In SoHo, Herald Square, and Lower Fifth Avenue in Manhattan average retail asking rents were down by more than 50% in the second quarter of 2021 compared with the same time five years ago. Five retail corridors in Brooklyn — Manhattan Avenue, Bedford Avenue, Grand Street, DUMBO and Court Street —posted year-over-year declines in average rent of more than 15%. Adoption of commercial rent control will further depress rents, property values, and tax assessments.

A far better focus for the Council would be on programs that incentivize new uses of vacant commercial real estate, such as incubator or accelerator space for start-ups and restarts to support recovery. For the past year, we have partnered with the city and the five borough chambers of commerce to run a Small Business Resource Network. We have learned from more than 20,000 entrepreneurs who have reached out for help from this network that rent is only one of many challenges they face. The Partnership would be willing to work with the Council on constructive efforts to reduce costs and stimulate recovery, as opposed to measures that further depress the economy.