Bay Area’s empty-storefronts plague: Blight goes far beyond downtowns

Welcome to Mountain View: Look at some blight.

Enter this Bay Area city, home to Google and dining hotspot Castro Street, via El Camino Real from the south and the first thing you see is a shuttered muffler shop with boarded up and papered over windows, sharing a crumbling parking lot with a defunct used-car dealership.

Mountain View — median family income $158,000 — is far from alone. Around the Bay Area, vacant eyesores gape.

Welcome to San Jose, Santa Clara, Sunnyvale, Palo Alto, Redwood City, Fremont, Oakland and many other Bay Area cities: They’ve got blight, too.

Struggling downtowns in San Jose, Oakland and San Francisco receive plenty of public attention, but cities around the region are facing a confluence of troubles outside their cores that are replacing formerly vibrant shopping districts with decaying, empty storefronts.

That restaurants and brick-and-mortar retailers — already teetering from the rise of online shopping — have been devastated by pandemic lockdowns and the shift to remote work has been well documented, but additional less-apparent phenomena are at work. Vast numbers of buildings were erected in the ’60s and ’70s as the Bay Area transformed from orchards to suburbs, and the cost of updating them deters prospective tenants and owners alike, while newer spaces remain expensive. Adding to the problem is the 1978 ballot initiative Proposition 13, that keeps property taxes low for owners of many older shopping centers and strip malls.

“There’s a whole set of perverse incentives that are conspiring to keep crappy retail spaces vacant for a long time,” said San Jose State University professor of urban and regional planning Kelly Snider. “They will not bounce back.”

Owners of older buildings with low property taxes can still make money with only 20% or 30% occupancy, Snider said. Many won’t update them because they can’t afford to or the improvements would raise their property taxes. Landlords typically want short leases so they can easily hike rents or sell the property, while retail tenants want longer leases, especially if they’ve had to invest in the space. The mismatch contributes to vacancies. Some deep-pocketed landlords keep spaces vacant while they wait for rents to rise, said Max Sandor, in charge of retail sales at commercial real estate firm Kidder Mathews.

Cities around the Bay Area are trying remedies from grants to punishments to redevelopment.

Santa Clara has embarked on a major redevelopment plan — heavy on housing and ground-floor retail — for its stretch of El Camino Real, an iconic trans-Peninsula artery with vacancies strewn along its length. At one of them, behind a metal cyclone fence at 2855 El Camino, an unkempt man pushes a bike out of the loading bay of a derelict former furniture store in a building erected in 1972. He exits through a hole cut into the fence. Inside, an unhoused woman carries a blanket through garbage and debris.

Next door, Baljit Singh and Sukhi Kaur run their cell phones-and-fashion shop The Connector. Singh said people living inside the former furniture store come into his shop and he feels he can’t tell them to leave. “They’re fighting outside sometimes,” Singh said. “Sometimes it’s scary.”

That blighted property next door to Singh and Kaur’s shop was proposed for redevelopment into townhomes, low-income apartments for seniors and ground-floor commercial space amid Santa Clara’s push to renew its stretch of El Camino, but the application was withdrawn last year. And whether such renewal gambits can address the empty-storefront issue remains far from clear.

How bad is the problem? No one knows. Cities admit that their vacancy numbers come from commercial real estate reports that leave out properties not currently for lease, such as the former Santa Clara furniture shop. A February memo from Campbell’s economic development manager to its city council noted that commercial vacancy appears low, but “there is likely much higher vacancy in smaller, unanchored, poorly located strip centers in the city, but they are not tracked.” San Jose spokesman Carlos Velazquez noted his city has thousands of storefronts, and “simply does not have the human resources” to count empty ones.

In Sunnyvale, Pints of Joy ice cream opened in November in a strip mall that now has three of 11 storefronts empty. If the shopping center were full of tenants, more people would drop in for artisanal treats in flavors including salted guava and blueberry mango, said manager Bibek Thapa. “That makes a lot of difference,” he said.

On Telegraph Avenue in Oakland, seven empty storefronts sit within a block of hair salon Knuckleheads and Harlots, and unhoused people often sleep in the doorways. “I have clients that don’t want to come here,” said stylist Hethur Babka. She also works at another salon up the same road but in Berkeley. “They’ll pay more to see me up there,” said Babka, adding that the scarcity of restaurants, bars and stores in the vicinity of the Oakland salon further deters customers.

Nearby on Telegraph, Jebena Cafe owner Freweyni Gepreselassie put $100,000 into the space before opening her Ethiopian coffee shop a year ago. Her business is sandwiched between vacant storefronts, and car break-ins and a nearby homeless encampment reduce the sense of safety, Gepreselassie said. “It is at this time very frustrating,” she said. “We don’t have a lot of customers.”

For all that, costs remain high in many places.

That’s what Marina Osipova and Vadim Osipov found while searching for a new space for their Mountain View ballet school. Their lease runs out at year’s end in a building slated for redevelopment, and they’ve been searching in vain for an affordable site. “Asking rate is incredible, it’s crazy,” Osipov said.

The Bay Area’s retail dynamic upends the classic rule of supply and demand: Despite plunging appetite for retail space, asking rents are rising in the East Bay and remaining level in Silicon Valley and on the Peninsula, data from Kidder Mathews show. Why rents are not falling with demand remains a “hundred million dollar question,” Max Sander said. Major landlords sitting on empty space hoping retail demand will rise post-pandemic may offer a partial explanation, Sander said.

Bay Area cities are seeking various solutions to the storefront problem. Oakland offered grants for small business owners and landlords, and voters there in 2018 approved a special tax for vacant residential and commercial properties.

San Jose this year has allocated $500,000 and expects to spend another $300,000 on “Storefront Activation” grants for improvements, with small businesses seeking to fill empty storefronts eligible for up to $15,000. A city program imposing quarterly $217 fees on empty buildings downtown appears to have failed to produce any significant drop in vacant storefronts, according to a city report.

Ground-floor retail in new developments, as emphasized in Santa Clara’s plan, is an essential element for creating community character and culture, Kidder Mathews’ Sander said.

However, Santa Clara County Assessor Larry Stone believes hitching retail to redevelopment projects will backfire, with “vacant storefronts in brand-new buildings.” City officials are addicted to retail sales-tax revenue, but that golden goose is severely ailing, Stone said. Consumers still want coffee shops, restaurants, hair salons and grocers, but “there’s just not a need enough to fill all the space available,” Stone said.

“Storefront retail is a dying enterprise.”