New York City

To reduce Manhattan storefront vacancies, fix commercial rent tax

NYC should tax empty storefronts to incentivize occupancy

An empty storefront on a street corner in Manhattan's Greenwich Village

An empty storefront on a street corner in Manhattan's Greenwich Village EQRoy/Shutterstock

Manhattan’s Canal Street is suffering at the hands of the very people who depend on its health: “In one four-block stretch between Broadway and West Broadway, there are no less than 31 empty storefronts,” the real estate website Curbed reports. “A handful of landlords wait for retailers willing to pay their exorbitant rents… The results have brought this once-bustling corridor to its knees, with dozens of small businesses driven out and dozens of shuttered storefronts, leaving behind an atrophied landscape.”

This phenomenon – one might call it “black card blight” – was covered in The New York Times last year: Bleecker Street storefronts that had once housed bodegas, antique stores, record stores, book shops and other small businesses in the 1980s and 1990s became high-end, luxury storefronts for global fashion brands in the 2000s. Commercial rents shot up to $35,000 per month or more, causing longtime local merchants to close rather than sign a lease they couldn’t afford. Then, by the 2010s, the Marc Jacobs and Ralph Lauren types realized that the rents they had induced by making Bleecker a corporate vanity address were too high to make a profit. They pulled up stakes, leaving behind a ghost town, as landlords prefer to hold out for the next luxury brand to come along, instead of reducing their rents. Black card blight – named for the prestigious credit cards offered to the most affluent consumers – isn’t a function of poverty. But vacant retail space may lead to graffitti, dirty sidewalks and gutters, and other elements of urban blight that we see in declining neighborhoods. If nothing else, it sucks the soul from a walkable neighborhood as it becomes abandoned, lacking the businesses local residents depend on.

At the end of last year, even with lower asking rents, retail vacancies in Manhattan’s leading shopping corridors were running from around 10 percent to more than 34 percent, according to a report by Cushman & Wakefield.

This mismatch between the retail rents desired by Manhattan landlords and the rent commercial tenants are willing to pay is a market failure, a phenomenon known as “sticky prices,” that sometimes requires a policy intervention to correct. One potential mechanism to correct the mismatch is to revise the city’s commercial rent tax to incentivize lower commercial rents.

The commercial rent tax, a legacy of what had once been a citywide tax that was largely repealed under then-Mayor Rudy Giuliani, is unique to Manhattan south of 96th Street.

The tax is imposed on the tenants of commercial property at an effective rate of 3.9 percent on rents that exceed $250,000 per year, or $500,000 per year starting in July after a law adopted last year. The tenant is responsible for 100 percent of the tax as well as the burden of compliance.

When a tenant vacates a location, however, there is no rent paid and thus no tax collected. It’s in these instances where the city has an opportunity to incentivize property owners to lower rents to levels that are more in line with what prospective tenants are willing to pay.

The burden to pay the tax on retail storefronts should shift to the landlord instead of the tenant, and the tax should be imposed at the last agreed upon rent, regardless of whether the property is being rented. This would help induce a landlord to offer lower rent until the storefront is rented because reducing the rent would ameliorate the cost of the commercial rent tax they would be paying on an empty storefront. The sooner a new lease is signed, the sooner the landlord is relieved of their tax burden.

For tenants, such a change would not affect their net costs, because the costs they now pay as the commercial rent tax would simply be added to their rent by the landlord. It should make no difference to retailers whether they pay the cost of the tax on their own or as an addition to their rent expense.

Under a revised tax, retail tenants would be freed of the hassle of complying with the tax law, since it would be applied to the landlords, who often have scores of small retail leases and would become accustomed to these new filings.
For the city, revenues from the commercial rent tax would become more predictable and help alleviate the costs of police, fire and other costs incurred by the city to protect vacant retail space.

The sticky prices we see in Manhattan retail rents aren’t unusual. It’s human nature to expect at least as much compensation as one previously received. (Think of your own paycheck.) But expectations and projections often fall short of actual market conditions. If they did not, there would be no such things as clearance sales. For Manhattan landlords holding vacant commercial space, it sometimes takes far too long to recognize that their rent expectations are unrealistic for the market. Whole neighborhoods can suffer in the meantime. Nudging landlords to lower their rent expectations through the commercial rent tax can help ameliorate Manhattan’s surplus retail space and reduce the blight that occurs around vacant properties.

NEXT STORY: Shola Olatoye deserves our support

X
This website uses cookies to enhance user experience and to analyze performance and traffic on our website. We also share information about your use of our site with our social media, advertising and analytics partners. Learn More / Do Not Sell My Personal Information
Accept Cookies
X
Cookie Preferences Cookie List

Do Not Sell My Personal Information

When you visit our website, we store cookies on your browser to collect information. The information collected might relate to you, your preferences or your device, and is mostly used to make the site work as you expect it to and to provide a more personalized web experience. However, you can choose not to allow certain types of cookies, which may impact your experience of the site and the services we are able to offer. Click on the different category headings to find out more and change our default settings according to your preference. You cannot opt-out of our First Party Strictly Necessary Cookies as they are deployed in order to ensure the proper functioning of our website (such as prompting the cookie banner and remembering your settings, to log into your account, to redirect you when you log out, etc.). For more information about the First and Third Party Cookies used please follow this link.

Allow All Cookies

Manage Consent Preferences

Strictly Necessary Cookies - Always Active

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data, Targeting & Social Media Cookies

Under the California Consumer Privacy Act, you have the right to opt-out of the sale of your personal information to third parties. These cookies collect information for analytics and to personalize your experience with targeted ads. You may exercise your right to opt out of the sale of personal information by using this toggle switch. If you opt out we will not be able to offer you personalised ads and will not hand over your personal information to any third parties. Additionally, you may contact our legal department for further clarification about your rights as a California consumer by using this Exercise My Rights link

If you have enabled privacy controls on your browser (such as a plugin), we have to take that as a valid request to opt-out. Therefore we would not be able to track your activity through the web. This may affect our ability to personalize ads according to your preferences.

Targeting cookies may be set through our site by our advertising partners. They may be used by those companies to build a profile of your interests and show you relevant adverts on other sites. They do not store directly personal information, but are based on uniquely identifying your browser and internet device. If you do not allow these cookies, you will experience less targeted advertising.

Social media cookies are set by a range of social media services that we have added to the site to enable you to share our content with your friends and networks. They are capable of tracking your browser across other sites and building up a profile of your interests. This may impact the content and messages you see on other websites you visit. If you do not allow these cookies you may not be able to use or see these sharing tools.

If you want to opt out of all of our lead reports and lists, please submit a privacy request at our Do Not Sell page.

Save Settings
Cookie Preferences Cookie List

Cookie List

A cookie is a small piece of data (text file) that a website – when visited by a user – asks your browser to store on your device in order to remember information about you, such as your language preference or login information. Those cookies are set by us and called first-party cookies. We also use third-party cookies – which are cookies from a domain different than the domain of the website you are visiting – for our advertising and marketing efforts. More specifically, we use cookies and other tracking technologies for the following purposes:

Strictly Necessary Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Functional Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Performance Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Social Media Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Targeting Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.