Tuesday, January 10, 2012

Retail Space Vacancies

If you walk around downtown Seattle for about ten minutes you can't help but notice all the ground floor retail space vacancies, especially for restaurants, coffee shops, and cafes.  The number of empty storefronts is unprecedented.

Here are a series of photographs I took along Seattle's Third Avenue this week.  THREE vacancies in just one block.  This is not some distant commercial district but literally the city's downtown core just blocks from thirty large urban hotels, Pike Place Market, and the Washington State Convention Center.

So why all the vacancies?

Politicians like to talk about the "bad economy" as if it were a monster like Godzilla that ate up all the good jobs.  Panda bears eat eucalyptus leaves.  The Bad Economy eats jobs.

Sorry, but a bad economy is really little more than poor political choices that affect business owners and indirectly employees looking for jobs and real estate investors trying to lease out commercial space.

Just look at the business math for restaurant owners and the real estate investors that want to lease them space.

Washington State, for example, just raised the minimum wage for 2012 to $9.04 per hour.  Unlike 44 other states, in Washington minimum wage workers receive the full hourly wage PLUS tips, in other words, no "Tip Credit."

In New York State, for example, a real bastion of progressive values, the minimum wage for restaurant workers is just $2.13 per hour.  It is assumed that tips will make up the difference to the state's minimum wage of $7.25.

According to the Seattle Restaurant Association, the 2012 increase in the minimum wage will cost the average Washington State food service business $6,000 to $8,000 per year in higher wage costs.

Inevitably, when wage costs increase the number of employees decrease.  Business owners aren't stupid.  If the cost of labor per hour rises, simply decrease the number of hours you need to buy.

In other words, don't hire new workers or fire some that you already have.

The idea that the minimum wage is a job killer is obvious here in Washington State where the average restaurant has THREE FEWER EMPLOYEES than comparable sized businesses elsewhere.

70% of Washington State restaurant owners are cutting staff or reducing business hours.  In other words, reducing the number of labor hours they have to buy.

What does all this mean?  If you are a low skilled employee of a restaurant like a waitress or hostess you can make $20 per hour.  But you are also trapped into a job where it is difficult to leave.  Where else can a high school dropout earn a skilled machinist's wage?  Plus you work harder and longer to earn that higher wage since there are, on average, fewer workers per shift.

If you are real estate owner trying to lease space, it means the mom-and-pop breakfast place that served eggs and coffee in the lobby for twenty years is now gone---along with all of its employees, tax revenues, and business dreams.

But the story gets worse.

Seattle, in an effort to prove it is a more progressive city than Portland or San Francisco, recently gave nearly all salaried workers five days of PAID sick leave per year.  Only two other cities in America, Washington DC and SF, provide such a benefit.  Once again, who really pays the cost for this public largess?  It's not the Seattle City Council who passed the law.  It's the employees who won't get hired and the business owners that will either pay yet another cost that cannot be passed on to their customers or go out of business.

By the way, if you are thinking of opening a restaurant in downtown Seattle and taking advantage of all that vacant space, also realize the Seattle area is coping with new bridge tolls (up to $5.00 each way) and new higher downtown parking rates and longer meter hours (up to 8PM most nights).

It is now more expensive to park in downtown Seattle than in Manhattan in New York.  Something is wrong there---especially if your business is trying to attract customers with cars such as suburban homeowners.

The epidemic of restaurant vacancies in downtown Seattle is no accident and this contagion is likely coming to a city, county, and village near you.

It's not Godzilla that is destroying the Seattle downtown commercial core, it's these monsters below.