We resume last week’s conversation about small businesses and the pandemic with Meltzer, chair of the Public and Urban Policy program at The New School’s Milano School of Policy, Management, and Environment and an authority on how market shocks and natural disasters affect neighborhood businesses.

Urban Matters: Rent is usually the #1 expense for small businesses in New York City. Even pre-pandemic there were calls for commercial rent regulations as a way of protecting small businesses. Now some elected officials have suggested property tax relief for landlords who go easy on small businesses, many of which haven’t been able to pay full rent during the pandemic. What’s your opinion of these ideas, and how likely are they to be enacted?

Rachel Meltzer: Whether the money goes to the landlord or the business itself, it comes down to the same premise: we need to provide financial relief to get them through the next few months. Rent is a fixed cost, unlike wages for employees, which can be reduced in the meantime. Without revenue coming in, the businesses can’t pay rent. However, in many cases, it doesn’t necessarily benefit the landlord to let the space sit vacant; it is unlikely they will be able to attract new tenants if they don’t find a way to cut a deal with the tenant in place. It’s risky and costly for landlords to secure commercial tenants, and if they have one in place that, were it not for Covid, would continue to be a reliable source of rent, it’s in their interest to work something out.

I’m not sure landlords need incentives to engage in special arrangements; for example, they could allow the tenant to “borrow” the rent and pay it back when economic activity resumes. Rather than incentivizing this kind of behavior, better to reform systems (or get rid of adverse incentives) in place that encourage landlords to let a tenant go and maintain vacant spaces (for example, tax benefits that allow them to write off these losses or minimum rent requirements put in place by investors or lenders).

UM: Many reports, including by James Parrott at the Center for New York City Affairs, have presented a pretty bleak outlook for small businesses in the city. At the same time, other reports have said that, nationwide, new business formation is skyrocketing during the pandemic. Is that happening here too? Are both things true; are lots of new small businesses getting started in the city while others, including well-known community standbys, are going belly up? Is there an equivalence in loss and gain?

Meltzer: I think it’s too early to assess Covid’s impact on new business formation. There is a lot of uncertainty now and that makes it hard for businesses to make decisions about locating and starting an enterprise (apart from the myriad other financial and practical hurdles). However, as establishments close and demand for commercial space declines, we’d expect rents to go down. This could provide opportunities for new businesses to enter, perhaps those that couldn’t afford to do so before. 

For example, much of the commercial stock in central and lower Manhattan will not be used in the same way; even if firms return to that office space it’s very possible they will not use as much of it. This space could open up for use by other enterprises, perhaps at lower prices. If work-from-home continues, neighborhood-based businesses might find new life in certain communities.  There could be a renaissance when the health threats de-escalate, but it would probably necessitate government-led initiatives to repurpose space or land, or to promote the city or specific neighborhoods to these firms and start-ups.

UM: Final question: The pandemic has been good for online retailers, but hard on shops that count on walk-in customers. Is that New York City’s future: double-parked UPS and Amazon Prime delivery trucks clogging residential streets while empty storefronts line neighborhood commercial strips?

Meltzer: There will certainly need to be a recalibration of storefront activity – and it will not happen without some investment or strategy from the public sector. We will have to consider the changes in how commercial space is being used and how people are moving around the city. We should leverage some of the innovation that has happened during these past months; for example, opening stores and restaurants up to the streets was overwhelmingly well-received by consumers and this could be a way forward for rethinking open space and commercial access in a post-Covid city.   

Cities will still be relevant, in no small part because of the cultural and economic amenities and services they provide. This is not the first disruption; indeed, online commerce and technology have been threatening the vitality of city streets for at least a decade. However, there are still benefits from in-person commerce and exchange that cannot be replicated remotely and I think people will be eager to return to these activities. The storefront experience in cities is very much tied to other features, like cultural institutions and office life, which thrive in urban settings. Theater-goers eat at restaurants and shop in stores; workers at tech firms, City government agencies, and non-profits buy lunch at nearby eateries and get their soles fixed at shoe repairs on the way to work. The functioning and advantage of cities, which persists, is not possible without storefront, retail activity.  

Photo by: Matias Campa.