URBAN POLICY: RETHINKING REZONINGNov 18, 2020 08:42AM ● By Harper Klein
Real estate often leads the economy out of recession. Rent and sale prices fall, vacancies rise, and financing costs are low, all of which create opportunities for new investment and new uses for land and buildings.
In Walnut Creek, the pandemic has accelerated pre-existing negative real estate trends such as high vacancy rates, according to John Cumbelich, CEO at John Cumbelich & Associates, whose firm represents a broad mix of retailers and developers. Commercial real estate experts broadly point to zoning changes as the easiest and fastest way to fill vacant space in a changing economy.
“Walnut Creek’s original land-use policies were developed in a pre-WWII America, which has led to chronic vacancy problems and an all-time high 20.2% vacancy rate in the historic downtown—the area from Civic to Mt. Diablo and Broadway to California,” says Cumbelich. His comments came in response to questions raised during a virtual Town Hall hosted by Walnut Creek Downtown last week.“For the past seven quarters, the downtown district was troubled by retail vacancies due primarily to the rise of e-commerce and an overabundance of retail space. While the demand for retail space is shrinking, the supply has been growing. Over the past decade, Walnut Creek added too much new retail space in its downtown corridor at places like Broadway Plaza and The Agora, which has also led to a contraction in the historical downtown."
Restarting investment quickly and considering alternative land uses that bring in new sources of foot traffic to support existing businesses should be a priority for policymakers. “We have continuously grown our supply without demand increasing,” says Cumbelich.
Assistant City Manager Teri Kilgore pointed to the COVID-19-related closure of the Lesher Center for the Arts as largely responsible for the decline in downtown foot traffic. Kilgore also suggested the data was erroneous, “Unlike what John said, and I disagree completely, we are seeing tremendous interest in development in Walnut Creek. We thought we would see pullback on existing projects, but many are moving forward.”
Several retail chains in Walnut Creek have closed in high profile locations—Forever 21, Talbots, Joseph A. Banks, Uniqlo, Z Gallery, Destination Maternity, Pier One—while others like Neiman Marcus are expected to follow at the end of the year. “With a lack of anchor tenants to drive foot traffic and no relatively convenient way to park, you’re going to have chronic vacancies,” said Cumbelich.
“Increased competition from neighboring cities is another factor driving high vacancy rates, said developer and property owner Brian Hirahara. “We’ve always been the powerhouse of the area but Concord, Danville, San Ramon are now strong competitors. We have too much retail supply and we never considered the competition from neighboring cities.”
This conversation comes at a critical juncture for Walnut Creek. After 31 years on staff, Community Development Director Sandra Meyer has announced plans to retire, opening the door for new leadership in the Community and Economic Development Department along with an opportunity for changes in zoning policy. “A vibrant downtown pedestrian environment includes shopping, dining, and an entertainment mix. We don't want to be like an Orinda which is all real estate offices,” says Kilgore.
The drop in business travel and tourism due to the pandemic as well as the emerging work from home trend will likely contribute to rising downtown vacancies and decreasing pedestrian foot traffic.
Vacant space leads to disinvestment, blight, and lower tax revenues. However, it also presents opportunity. Vacant space can be reused for new purposes or redeveloped into new buildings. A restaurant can become a bicycle shop. A hotel can become housing. A single-story commercial building can become an apartment building with ground-floor retail. Reinvestment in new uses for old buildings, as well as in new buildings on redevelopment sites, creates jobs and tax revenue to help lead the recovery.
“Would you rather bring in high-quality businesses like title companies and outpatient healthcare clinics, or leave the spaces vacant? The city is fearful of bringing in non-sales tax revenue-generating businesses. We've thrown the baby out with the bathwater. We need to adjust policy to bring in new categories of Class A businesses downtown,” says Cumbelich.