Even though most of its neighborhood shopping districts have an empty storefront or two, vacancy rates in Berkeley are at the lowest levels they have been since 2012.
City-wide, the vacancy rate for ground-floor commercial space was 4.6% during the last quarter of 2017 compared to 8.1% during that same period in 2012, according to data released by Berkeley’s office of economic development. That’s a 43% decrease.
And restaurants now dominate those storefronts. In mid-2015, for the first time, tax revenue from food and beverage services was higher across the city than the tax revenue from “soft goods” retail, which includes stores that sell clothes, sundries, books, music, computers and other goods, according to city figures. That trend continues. The percentage of retail stores in ground-floor commercial spaces declined city-wide from 44.8% in 2015 to 40.5% in 2017.
“Our strong occupancy rates for ground-floor commercial spaces in commercial districts are being driven by growth in food services, as well as personal services, such as gyms and other exercise businesses,” said Jordan Klein, Berkeley’s director of economic development.
Berkeleyside reporting over the past few years bears out that observation. In 2017, 53 restaurants and bars opened in Berkeley and 25 closed, according to our (not necessarily comprehensive) coverage. In contrast, 34 stores offering “soft goods,” as well as a handful of gyms and hair salons, opened. In 2017, 11 stores closed, according to Berkeleyside’s Shop Talk column.
One exception is the West Berkeley area, which includes the Gilman District and the Fourth Street shopping district. which still generates more tax revenue from stores than from restaurants. Jamestown, a developer, built a new section on the south side of the Fourth Street area, and at least six new stores and a gym, SoulCycle, opened there in 2017. West Berkeley generated more than $4 million in sales tax revenue in 2016. (Two of Berkeley’s biggest tax generators are in this area: the Fourth Street Apple store and Weatherford BMW.) The region generated a little more than $1 million in revenue from food and beverage services, according to city data.
Downtown has seen particular uptick
Downtown, in particular, has benefitted from the uptick in the economy and the rush of new restaurant openings. In 2012, 10.7% of the storefronts in Berkeley’s central core were empty. Today, only 4.6% are vacant, a 57% decrease, according to city figures.
Sales tax revenue in the downtown area from food and beverage businesses rose 4.6% between 2014 and 2016, from $882,275 to $924,631, according to city figures. Sales taxes from retail in the downtown, in contrast, declined in that time.
“There’s excitement about the direction we’re going so we see new businesses coming in, particularly restaurants,” said John Caner, executive director of the downtown Berkeley Association.
Another thriving area is North Shattuck, also known as the Gourmet Ghetto. The vacancy rate there is 0.4%, the lowest in the city.
Solano Avenue, which lost a number of businesses in recent years, rebounded in 2017. During the first quarter, that stretch’s vacancy rate was 7%. By the end of the year, it was 4.8%.
University Avenue, however, is not as successful at filling stores. The vacancy rate was 12% at the end of 2017, the highest in the city and the highest it has been in five years. Of course, the length of the street means it traverses different shopping zones.
The Elmwood district has also struggled, although it appears to be turning around. In the first quarter of 2017, the vacancy rate was 9.7%, the second highest in five years, A number of stores and restaurants had closed, including The Advocate, A.G. Ferrari’s, Jeremy’s and Lululemon. The two restaurants have since been replaced by new food purveyors, and the vacancy rate dropped to 5.4% in the last quarter of 2017. (For a complete list see the chart below.)
Berkeley’s office of economic development breaks the city up into nine distinct shopping zones: University Avenue, West Berkeley, South Berkeley, and San Pablo Avenue.
Food and beverage sales taxes eclipsed retail sales taxes in five of the nine: Downtown, the Elmwood, North Shattuck, Solano Avenue and Telegraph Avenue, which has seen an infusion of restaurants in the past five years. In 2016. taxes from food and beverage places surpassed taxes from stores for the first time.
The areas where there are more stores, garages, shops, and other service industries are on University Avenue, West Berkeley, South Berkeley and San Pablo Avenue.
While the low vacancy rates usually indicate a thriving economy, the concentration of so many eateries does concern Klein, Caner and others. Restaurants are particularly susceptible to swings in the economy. Already, many small restaurants feel the pressure from Berkeley’s rising minimum wage. Employees are having trouble, too, finding affordable places to live in a city where the median rent for a two-bedroom apartment hovers around $2,500. There’s also the question of how many restaurants can a city of 120,000 sustain?
“I’m worried how reliant we are now becoming on food and beverage services,” said Michael J. Berne, the president of MJB Consulting, a retail planning and real estate consulting firm with offices in Berkeley and New York. “There is a ceiling and on the other side there are these escalating costs. At some point, you are going to hit saturation.”
Nationwide, there has already been a “shakeout” in certain parts of the restaurant business, said Berne. Sit-down casual chains like Red Lobster and Applebee’s have seen profits plunge. Although those chains don’t exist in Berkeley, there appears to be some softening nationwide in a sector that has recently arrived in Berkeley, known as “fast-casual,” restaurants. These are places that have counter service and serve high-quality food at reasonable prices.
Downtown Berkeley has a number of fast-casual places, such as Sweet Greens, Tender Greens, Chipotle, Chick’n’Rice, and a slew of burger places. One fast-casual restaurant, Pieology, closed its Telegraph Avenue location in July. (Sliver Pizzeria just took over the space.)
Traditionally, particularly in the downtown, the restaurants that have thrived are known as “quick-service” restaurants. They cater to students and have low prices and fast service. Center Street and Shattuck Avenue are lined with these kinds of restaurants.
Retail continues to move online
The drop in retail spaces also reflects a national trend as more customers shop online and rents and wages rise.
Diversifying the types of business in downtown Berkeley has been difficult in recent years, said Berne, who has worked with the Downtown Berkeley Association. Berkeley’s downtown once held a variety of stores, like Hinks department store, JC Penny’s, Leeds department store, and Earl’s Shoes. Those stores are gone, replaced with others like CVS Pharmacy, Walgreens and Target that sell everything from drugs to makeup to food to alcohol to cell phones.
While many in Berkeley would like to see more boutiques and clothing stores in the downtown, clothing stores like to cluster with other clothing stores as customers like to comparison shop, said Berne. This is why there are so many clothing stores along Fourth Street, and to a lesser degree in the Elmwood and along Solano Avenue.
Berkeley plans to make the health of small businesses a priority. In 2017, City Councilwoman Sophie Hahn asked the city manager’s office to take a deep look at the challenges facing Berkeley’s small businesses. After many months of research, interviewing small business owners, looking at programs other cities offer, and more, the Office of Economic Development will present its findings in a special session of the City Council on Jan. 16 at 6 p.m. The study found that there are 5,000 businesses in Berkeley with 50 or fewer employees. About one-quarter of General Fund revenues come from business-related taxes, according to the report.
“Going forward, and this isn’t unique to Berkeley, ‘experiential’ businesses and businesses with hybrid revenue models (e.g., a service, entertainment or recreational component along with a retail component, or even light manufacturing coupled with retail) will be increasingly important in downtown and in our neighborhood commercial districts,” said Klein.