To reduce retail vacancies in downtown San Mateo and ensure downtown remains a hub for retail business, the City Council wants to explore short-term policy options to encourage landlords to occupy vacant spaces.
“I would like to see some of these options that we talked about for encouraging landlords to occupy vacant spaces and take a closer look at that. I think that’s something proactively we could do as a city,” Councilmember Diane Papan said.
Possible policy interventions discussed at the City Council’s Oct. 18 study session include encouraging city staff zoning flexibility, pop-up retail uses or displays, more marketing and exploring potential incentives or disincentives to encourage landlords to occupy vacant spaces, according to a city staff report.
The City Council had been concerned about retail vacancy rates downtown at ground-floor retail businesses due to COVID-19 and changes like an increase in online shopping. A city survey done during the first week of September found 32 vacant retail storefronts in the downtown retail core out of 275 ground floor retail spaces. Of the 32, 18 are actively looking for a tenant, six are vacant due to redevelopment, and two are off the market due to the site condition or owner requests. Six sites have new tenants identified but must complete improvements, with new tenants expected to operate within six to 12 months. The total vacancy rate is 12%, but if properties leased to a new tenant but appear vacant are removed, the rate is 9.75%. The typical vacancy rate in commercial districts during nonrecession times is 7%. The city defines the downtown core as the blocks between Baldwin and Fifth avenues and El Camino Real and Railroad Avenue. A public survey found 84% of people went downtown to dine, 78% to pick up food, 57% for entertainment and 53% to shop at retailers.
Nonfood sites have a harder time finding tenants and often remain vacant for a more time, like the former Saigon Day Spa, a 1,680-square-foot nail salon at 135 S. B St. The city said the space could not accommodate a food tenant due to its size and lack of a kitchen. An ideal size is around 1,000 square feet with a building depth of about 50 to 60 feet. The proximity to Hillsdale Shopping Center and downtown Burlingame and the increase in online shopping also hurts retail.
Vacancy issues also exist due to landlords redeveloping the property or purposefully holding it off the market. Another barrier is the parking in-lieu fee charged with a change of use, which increases parking demand. A change in use that leads to an increase of more than 10 spaces would result in a $50,000 cost per space for each additional parking space.
Councilmember Joe Goethals suggested an option to help more creative zoning administration in uses for spaces that make sense for the downtown. Downtown has zoning provisions that limit types of businesses allowed on the ground floor and where. The council also directed staff to review downtown uses as part of the general plan and subsequent downtown area plan update.
“I hope that we can encourage the zoning administrator to use his or her judgment in a way that will support downtown and support the kinds of uses that they are looking for rather than having vacancies. Nobody is served by vacancies,” Goethals said.
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Councilmember Amourence Lee supported exploring policy options to help address vacancies. Staff said evaluations could come back with options and assessments of what it would take to start initiatives. She categorized vacancies into two categories. One is intentional for a future redevelopment project, while others are vacant without any plan or any apparent designated use, which she saw as a higher priority to address. She also supported exploring more zoning flexibility.
“If that can happen through the zoning administrator being empowered to use as much creativity and flexibility, then I am all for it,” Lee said.
While the council was interested in exploring options, it was against changes to parking in-lieu fees, something city staff noted was an option.
“I don’t think I would touch the parking in-lieu fees. It doesn’t seem like there are a lot of businesses that are even triggering the 10 parking space threshold. I don’t know if we need to change it at this moment in time,” Papan said.
Deputy Mayor Rick Bonilla noted the downtown area was highly resilient, with vacancies not as low as they seem because properties are embarking on improvement projects.
“Things are not always what meets the eye,” Bonilla said.
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