The discussion generated by the Economic Development Commission regarding a one-year moratorium on bank growth is a good one. But here’s a different question that has me puzzled: How do we account for all the empty retail space in our villages? I spoke to the owner of a hair salon in Wellesley last week who has to find a new location because her landlord is taking over her space. She’s looking for space in Newton, Needham, Wellesley, etc. She said the prices in Newton are prohibitive.
How can this be given all the empty space in so many of our villages? Forget for a moment that this is a salon that we’re talking about. How can landlords afford to let their space stay empty for so long?
I’ve wondered this for a long time. We’ve lost so many good stores and restaurants in the villages due to the exorbitant rents, and that’s why we end up with more banks than we need and fewer stores that people in the neighborhoods would use on a daily basis.
Commercial rents are generally longer term than residential rents. Most start at 5 years, and many leases have tenant options to extend for 5 year incremental periods. Commercial landlords anticipate occasional vacancies. Most commercial landlords in Newton are not going to under price their space or lease it at a discount, because that short term decision would have long term implications. They would rather let space sit vacant for a year or two, and rent it at market value when the economy recovers. If you look at the empty storefronts it’s easy to think that the rents are set too high. But look at how many spaces are occupied, because those are a much better indication of value.
In addition to what Mike said, don’t forget build-out costs are also high and need to be taken into account. And it is largely about the location. For instance, in Newtonville the old KFC and Ctsar spaces rented relatively quickly to new restaurants. The Newtonville Books space looks to have been rented as well, although I think as office space (hard to tell right now). All those spaces were corner spaces, great visability.
BTW, very excited about the Brewer’s Collective. The buildout looks great.
Just says the salon owner isn’t good at negotiation (although I don’t believe the Newton rents are materially different than Wellesley). But do you really want to block out banking competition from entering space to accommodate hair salons? Bank Of America should extend you a free mortgage.
Actually Hoss it says to me that you can’t get a manicure or a perm from Amazon.com.
Sorry Greg, I didn’t understand. If Amazon is a force against Newton’s retail shopowners (if that’s what you meant) then that would be a benefit to a salon owner in search of space. (As well as a banker looking to force out other bankers)
Yeah Hoss, Fig’s right. I actually didn’t realize that you were commenting on Gail’s specific salon. Thought you were talking in general about the proliferation of banks and hair salons.
I think Greg is saying that small shops selling goods have to compete with Amazon to such an extent that their margins can’t cut it. Certain goods (like shoes) folks like to try on in person. Amazon should pay sales tax.
Sounds like a 1960s view on the evils of malls. Now we have malls, big box and multi-channel retailers. What is the context with rental rates?
We need a gun shop!
Mike
We live in an environment that blocked a major supermarket from using their limited liquor license. And now we’re potentially blocking both start-up banks and multinational banks. You want free enterprise to bring a in a gun shop? You’re forgetting we got this bi-polar disorder that hates arms, loves drugs, hates supermarket beer sales, loves full-sale liquor sellers…, hates banks, loves business the lend to…
@Hoss: To be fair to the proposal, it would not “block” banks, it would require additional permitting. (That’s not an endorsement, just clarifying.)
I think a gun shop could do great in Newton. I don’t know that the city could actually block an FFL, however, it would probably be easier to open in an existing shop, such as sporting goods, fishing, etc. Despite the vocal oppostion to 2A in Newton, there are a lot of potential customers as there are a lot of licensees. My comment was of course somewhat tongue and cheek, and if I still lived in Newton full time I’d be all about doing it.
Mike
Greg Reibman — I don’t think we’re seeing too many traditional salons, it seems we’re seeing lots of manicure and chop shops in a market that can’t support them all. (I see two opportunities in this area (1) Newbury Street quality salons for men and (2) affordable salons trained to serve people of color (we have a few high end shops).)
Well done Mike Striar.
His response at the top of this thread not only answered the original question (“If Newton has so many vacant storefronts, why are rents so expensive?”) but provided a concise primer on retail rents.
Mike Striar – Even with a 5 years lease, a year long vacancy is a 17% (1/6) loss of income. A two year gap is a 28% (2/7) loss. You’d think those sort of vacancies would lead to some kind of drop in the rents. I guess “hope springs eternal”.
Jerry– You’re correct with the numbers, but measuring over what’s generally the shortest rental period [5 years]. Also most vacancies in Newton don’t sit empty for 2 years, which you used to calculate the larger 28% “loss.”
Let’s use Newton Centre for example. Think about how long Johnny’s, Walgreens, Bill’s Pizza, or Bank of America have been in their same locations. I don’t know the specific terms of any of their leases, but those are the successful, long term businesses that most landlords are looking for. Landlords want [and project their numbers based on] successful long term businesses that execute lease extension options and stay in place for many years. If you have a commercial space sit “dark” for a year, but land a tenant that might be there 20+ years at full market rate, that’s a preferable scenario to offering [and getting stuck with] a below market rent.