Pedestrians pass a vacant storefront on Franklin Street in downtown Boston. The Downtown Boston BID reports that numbers of vacant storefronts in its neighborhood have dropped by over 20 percent in the last year. Photo by James Sanna | Banker & Tradesman Staff
Downtown Boston is in the midst of its latest transformation. After emerging from wars, fires, a depression, recessions and, yes, even other pandemics, the neighborhood has always emerged stronger and better tailored to a new generation and new audiences.
Presently there is an incredible amount of discussion comparing 2023 to 2019, as if the city and central business district we experienced at the time was perfect.
It wasn’t.
The business climate in Boston was strong then and is strong now. But before the pandemic in March 2020, we had developed a neighborhood and a set of services geared predominantly toward the reliable cadence of office workers.
Our downtown was filled with fast-casual lunch options, convenience stores, banks, tailors, barbers and shoe cobblers. These options did not and do not provide enough interest for most shoppers, tourists, students, theater and restaurant patrons or any nighttime and weekend visitors.
And, as a relic of the central business district that evolved in Boston over time, these offerings largely ignored women – who, studies show, influence or manage 85 percent of all consumer purchases – as well as people of color, who now make up over 50 percent of Boston’s population. Our downtown retail offerings were not ready for the world that is emerging post-pandemic.
Over the last year, the Downtown Boston Business Improvement District (BID) has focused our efforts on filling vacant retail spaces with an increasingly diverse mix of business types, while supporting other initiatives to grow foot traffic through tourism, destination event attendance, pop-up shops, new housing (either office conversions or new developments) and offerings that might incentivize the increased return of office workers.
In addition, the BID recently committed $2 million over the next three years to our ‘Level Up Downtown’ initiative. Through Level Up Downtown, we are supporting efforts that bring new businesses downtown that better fit the emerging neighborhood and the way consumers seek retail and experience offerings today.
Fewer Vacancies, More Eateries
In late 2022, the BID tallied 95 retail vacancies among our area’s more than 400 storefronts. Today, that number is 75 and dropping.
Today, the BID area, which covers much of Boston’s traditional downtown, has over 150 restaurants – even more than we had in 2019 – and many address gaps in our market offerings.
Other storefronts formerly geared toward convenience are being replaced by destination businesses, like a forthcoming home goods store focused on ethically-sourced products, or a successful local salon catering to black and brown skin tones that is now expanding to downtown after a Newbury Street location became over-subscribed.
Early in 2024, the first East Coast location of the WNDR Museum will open in Downtown Crossing, bringing a large-format immersive and interactive art museum that will appeal primarily to families, tourists and young professionals.
Much of Downtown’s retail resurgence has been buoyed by the city of Boston’s S.P.A.C.E. grant program, which has thus far offered 24 businesses a grant up to $200,000 to open a new storefront. Many of those companies are choosing to locate downtown, and two subsequent rounds of the program will eventually bring the total federal ARPA funds disbursed to $9 million. Such subsidies position a business owner to overcome the simultaneous startup challenges of rent, security deposit, build-out costs and infrastructure acquisition to fill a vacant storefront faster.
Loan Terms Can Prevent Proven Solutions
For all these positives, the BID’s downtown property owners remain confronted by broader headwinds when it comes to filling in the remaining retail vacancies.
Further stress on the office market, caused by the ongoing evolution of office worker behavior, is anticipated for years to come. This is compounded by restrictions on the underwriting on existing loans, which complicate our shared ability to seek flexible retail arrangements and innovative use of vacant space.
It is our hope that lenders and those with banking interests in downtown buildings will study the impact of vacant retail on their mortgagees’ bottom lines – and their own. Touring prospective office tenants through a building with expansive first-floor retail vacancies feels like test-driving a car with a broken headlight.
Other markets have more readily experimented with programs that view retail vacancy as a collective problem worthy of a collective solution. A recent retail leasing program offered in one part of southwest England gave prospective businesses two years of free rent to turn a near-empty stretch into a bustling commercial district. Included among the leaders of the effort was Britain’s largest asset manager, which had been struggling to revive the area while being faced with at least 10 vacant storefronts.
The result? The area became a thriving hub for independent businesses with a diverse and contemporary set of retail offerings.
Michael Nichols
Retail Rents Sticky
The effort mimics what urban and suburban mall developers in the U.S. are already able to do – balance loss-leading, below-market rents for certain priority businesses in order to attract and maintain market rents from others, all on a single balance sheet.
But in the BID area, with 200-plus unique commercial properties and their respective owners, we will need noteholders to support a new approach to valuing retail spaces. Asking rents for vacant retail have stubbornly clung to pre-pandemic levels and been slow to align with the opportunity of the moment.
The BID’s research has shown that new retail sectors downtown would improve the overall attractiveness of the neighborhood for discretionary shopping and dining trips, in turn supporting the allure of available office space. Numerous offerings have demonstrated locally the success of spaces geared toward a new generation of creative, small and independent locally-based businesses aimed more at Millennial and Generation Z audiences.
In the year ahead, the BID will convene owners, brokers and noteholders to consider a refreshed path forward to build on the successes of the past year. As today’s stewards of Downtown Boston, we would all do well to think differently about the downtown retail sector, to ensure the next 25 years are even better than the last 25 years.
Michael Nichols is president of the Downtown Boston BID.
