Mayor floats retail vacancy tax

Mayor Bill de Blasio is “very interested” in a proposal to penalize landlords who own buildings with long-term retail vacancies. Photo: Steven Strasser
Could a fee on empty storefronts reduce vacancies on Manhattan retail corridors?

Mayor Bill de Blasio waded into the policy debate over how to address persistent storefront vacancies in Manhattan retail corridors by endorsing a controversial policy intended to incentivize landlords to rent out empty spaces more quickly.

In a recent interview with WNYC’s Brian Lehrer, the mayor said he is “very interested ... in fighting for a vacancy fee or vacancy tax which would penalize landlords who leave their storefronts vacant for long periods of time in neighborhoods because they’re looking for some top dollar rent but they blight neighborhoods by doing it.”

“I think there should be a penalty if a landlord does that,” de Blasio said. “That’s something we could get done through Albany.”

The mayor has yet to put forth a detailed proposal, but similar policies have been implemented and explored outside New York in recent years.

In 2014, San Francisco adopted an ordinance requiring landlords to register vacant storefronts with the city within 30 days of a space becoming vacant. If the storefront is not occupied within 270 days of registration, the landlord is required to pay a recurring annual fee of $711.

Failure to register can be punished with penalty fees of more than $6,000, but a recent report found that in spite of this threat, the penalty is rarely imposed and compliance among property owners is low. In all of San Francisco, just 25 vacant storefronts were registered with the city in 2016 — “clearly an understated amount,” according to a January 2018 report prepared by a city analyst.

Other municipalities have adopted similar vacancy policies with fee schedules that escalate the longer a storefront remains empty. The Borough of Metuchen, N.J., for example, charges an initial registration fee of $500 that increases with each annual renewal, reaching $5,000 by the third renewal. The borough may waive the fee if “a consistent good faith effort is shown to market, rent, sell, or lease” the storefront. The ordinance notes that merely placing a “for rent or lease” sign in a storefront does not in and of itself meet the requirements of such a good faith effort.

Lawmakers in other cities, including Berkeley, Calif., and Boston have also raised the possibility of implementing a commercial vacancy tax.

A retail vacancy tax in New York City would face opposition from the real estate industry and would likely require approval from the state.

The Real Estate Board of New York swiftly panned the idea in the wake of de Blasio’s comments. “The City’s retail environment is going through a transition primarily due to macro-market forces, like Amazon, and increasingly unfriendly local regulations,” REBNY President John H. Banks said in an emailed statement. “Property owners take a substantial financial hit when they are unable to secure a tenant. A vacancy tax, premised on a flawed set of assumptions, will punish owners further and do nothing to address vacancy.”

A retail vacancy tax would take aim at one specific condition that can lead to long-term vacancies — landlords holding properties empty until a tenant willing to pay their asking rent comes along — but speculation is just one of a variety of reasons storefronts become and stay vacant, which can differ by neighborhood, commercial corridor and individual storefront.

The city does not comprehensively track retail vacancies or their causes.

Manhattan Borough President Gale Brewer, who is supportive of a vacancy tax in principle, has advocated for better data collection by city agencies as a first step.

“Unless we quantify the problem before, during and after we attempt to enact a solution, how will we be able to assess our success and how to best proceed in combating commercial vacancy in our neighborhoods?” Brewer said at a City Council hearing on the topic in December. “So the bottom line is we really need the data and we really need the agencies to help us gather it.”

A December City Council report outlines a number of other potential policies intended to reduce the vacancy rate in Manhattan retail corridors, including one idea to offer a tax abatement or subsidy to landlords willing to enter into leases with renewal riders setting a maximum threshold for rent increase — a carrot, in contrast to the stick of a penalty fee for vacancies.

In the meantime, the retail leasing market has shown signs of a correction. Average asking rents dropped in 13 of 17 high-profile retail corridors tracked by REBNY from fall 2016 to fall 2017, the most recent data available. Price reductions were significant in many key corridors over the period, decreasing by 25 percent on Bleecker Street in the West Village, by 15 percent on Broadway in SoHo, and by 16 percent on Columbus Avenue on the Upper West Side.