This month’s column is very personal to me because it really represents an intersection of two of my professional career paths—retail and housing.
Before my role as CEO of the Santa Clara Association of Realtors, I spent nearly a decade working at the San Jose retail icon, Mel Cotton’s Sporting Goods. In 2005, I left as general manager to start my own retail establishment in downtown Campbell named Trailsloggers. In 2011, I closed my doors at Trailsloggers for good, recognizing that the retail market trends had changed drastically as more and more shoppers were turning to the information superhighway for their consumer needs.
Fast forward to 2020, along with the pandemic came forced closures of many small retailers due to shelter-in-place orders.
Despite the Small Business Administration providing COVID-19 relief options such as the Economic Injury Disaster Loan and the Paycheck Protection Program, only a fraction of small businesses would survive. The economic devastation was just simply more than most companies could withstand. Even regional retail giant Fry’s Electronics could not weather the storm, permanently shuttering all retail locations in early 2021.
Economic indicators in the commercial real estate market point to a rise in commercial vacancies and many shopping centers are predicted to remain empty for the foreseeable future. As with many trends sparked by COVID-19, the pandemic accelerated the rate of retail closures and a trend away from brick-and-mortar retail as consumers turned to e-commerce in greater numbers.
So what can we do with all this vacant space?
We can convert it to much-needed housing. This is a unique opportunity for the government to free up land for residential development by rezoning it to meet housing demands. According to Byron Carlock, who leads PwC’s U.S. Real Estate Practice, “If you think about it, all that retail real estate is not in trouble because of its location. It’s probably pretty well located to demographically attractive users, but there’s just too much of it.”
“So tearing down a 1950s or ’60s strip center and putting up a new mixed-use apartment building makes sense,” Carlock added.
These shopping centers have ample parking, are traditionally accessible by public transit and have the required infrastructure to support housing of all types. An example of this type of conversion can be found in Seattle, where developers are converting part of the 41-year-old Alderwood Mall into housing.
Commercial office space is also being reimagined as companies discovered throughout the pandemic that they could continue to deliver outstanding products and services while operating under a remote working environment. While the future is probably that of a flexible hybrid workforce as opposed to a pure remote workforce, the lasting effects on office space will be profound. According to a recent article in the Silicon Valley Business Journal, San Jose has over 38 million square feet of vacant office space. There may be a market for some of these older office buildings to be repurposed or redeveloped into housing if rezoning was allowed.
In Sacramento, officials are trying to do just that from a statewide perspective with the Neighborhood Homes Act.
“With the pandemic upending the office and retail property markets by encouraging remote working and more online shopping, these underutilized properties can be repurposed into new housing, which California desperately needs,” said Dave Walsh, president of the California Association of Realtors. “In fact, C.A.R. is supporting Senate Bill 6—introduced by state Senators Caballero, Eggman and Rubio—which aims to do exactly that.”
“And because many of these properties are located near transit, this bold approach will help create walkable new housing communities and decrease the need for parking, which reduces development costs and keeps the units more affordable,” Walsh said.
I understand local governments may be apprehensive about the loss of potential sales tax revenue, but we have to recognize the inevitable trend that brick-and-mortar retail and the office space market will continue to have downward pressure. We have to ask ourselves, “Is this the best use of our precious land?”
I believe the answer is a firm NO and that we have to find a way to navigate the messy entitlement and rezoning processes that stand as a barrier. We should not prioritize empty parking lots and vacant commercial space over housing. The housing crisis is real and we have an unprecedented opportunity to do something transformative, innovative and meaningful.
San José Spotlight columnist Neil Collins is CEO of the Santa Clara County Association of Realtors, a trade association representing more than 6,000 real estate professionals in Santa Clara County and surrounding areas. His column appears every fourth Thursday of the month. Contact Neil at [email protected] or follow @neilvcollins on Twitter.