Brooklyn’s Business Boom: Retail and Other Consumer-Driven Sectors

In the previous post, which should be read first, I chronicled the location of and trends in Brooklyn’s office-based businesses. This post is about consumer-driven businesses. How hard is it to know the future? Consider the 1958 report from consulting firm Voorhees Walker Smith & Smith, Zoning New York City, which formed the basis of New York City’s current zoning resolution, passed in 1961.

https://archive.org/details/zoningnewyorkcit00voor

Page 11. The growth of the supermarket has plainly reduced the role of the neighborhood food store. The efficiency of the large supermarket is such that a given volume of sales can be handled with sharply lower frontage requirements and, even allowing for parking areas, with appreciably lower land requirements…Simultaneously with the growth of the supermarket has appeared the integrated shopping center, ranging in scale from neighborhood units of ten stores to gigantic complexes with department stores and chain store branches. Since the main attribute of the shopping center is one-stop shopping for the automobile customer, the radius of retail trade areas has dramatically increased.

It is now a commonplace that both the downtown shopping district and the local string street have been adversely affected by these innovations in retail trade (resulting in) the excessive amount of retail frontage in the numerous strip developments of the city. A survey of frontages in sixteen shopping districts in widely scattered parts of the city indicated an average retail vacancy rate of nine percent, with an additional six percent of store frontage occupied by non-retail uses.

It is now 59 years later, and as a result of additional innovations in retail trade, the entire economic structure described by Voorhees Walker Smith & Smith is collapsing in suburban and Sunbelt America, as the strip districts of Brooklyn boom.

Before getting back to the maps, I’d like to say that in my opinion Voorhees Walker Smith & Smith were wrong even back then. An average vacancy rate of nine percent is elevated but not high, and who cares if storefronts are occupied by non-retail uses? Neighborhood clubs, senior citizen centers, daycare centers, after school activities and charter schools. Repair shops, custom goods workshops, offices, co-working spaces and art studios.   Don’t we want these? Planned suburban shopping centers did not have them, because they distracted from their primary purpose – buying stuff. And the 1961 zoning was based, in part, on the notion that the city must mimic the suburbs to compete. So many of these types of establishments are not allowed on large parts of NYC commercial streets, though they are there illegally and subject to harassment.

Moreover, to the extent that the city’s commercial districts were weak in 1958, it was because the middle class was moving out and taking its spending power with it.

Today in New York City we have retail vacancies not due to a shortage of demand, but due to landlords with stars in their eyes raising rents so high virtually no low-turnover business can make money. And we are missing out on creativity and economic opportunity as a result. Even in neighborhoods with two commercial “Main Streets” rather than one – 5th and 7th Avenues in Park Slope; Court Street and Smith Street in Carroll Gardens/Cobble Hill – it is hard to find affordable spaces for new businesses and other organizations.

Once again, here is a map of zipcodes and a map of neighborhood names in Brooklyn. The first map using Zip Business Patterns data follows.

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Brooklyn Neighborhood Map

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In Brooklyn, data mapped using the program CartoDB shows that one fifth of the borough’s establishments with 20 or more employees in the consumer-driven sectors (Retail Trade; Accommodation and Food Services; Arts, Entertainment and Recreation; and Other Services (such as beauty parlors and dry cleaners)) were located in just two zip codes. There were 172 such establishments in 11201, Downtown Brooklyn and Brooklyn Heights, and 79 in 11211, in Williamsburg.

Not all were retail stores. Borough-wide, Retail Trade accounted for just 685 of the 1,296 establishments in consumer-driven sectors that had 20 or more employees. Retail accounted for 60 of the 172 in zip code 11201, and 28 of the 79 in zip code 11211.

The number of Brooklyn Retail Trade establishments with 100 or more employees increased from 50 in 2005 to 76 in 2015. They are located all around the borough. Back in the 1990s, the Department of City Planning found that even as a huge share of New York City residents were out of the labor force unable to find work, a large share of the consumer spending by the city’s best-off residents took place at suburban shopping centers. You even had Manhattan residents driving to New Jersey to go to supermarkets. As a result, Brooklyn had far fewer retail establishments with 100 or more employees than one might have expected given its population, and far fewer than it had in 1969, according County Business Patterns data. That has apparently reversed. According to a copy of 1969 County Business Patterns I saved from the dumpster at City Planning years ago, there were 56 Retail Trade establishments with 100 or more employees in Brooklyn that year.

Borough-wide there were 593 establishments with 20 or more employees in the Accommodation and Food Service sector, with 71 in zip code 11201 and 55 in zip code 11211. As noted in the prior post, a place of business can have a large number of employees because it is open and busy many hours, not because just because it occupies a large space. A busy restaurant that serves breakfast lunch and dinner and has some after-hours business seven days a week can employ many people. With cheap money, desperate cheap workers, and (in places other than Brooklyn) cheap space, eating and drinking places have accounted for a large share of job growth since the Great Recession, to an extent that looks like a bubble. Borough-wide the number of large establishments in this category was up from 267 in 2005 to 593 in 2015. The number of hotels has also increased rapidly here.

There were 97 such establishments in the Arts, Entertainment and Recreation sector, including 18 in zipcode 11201 in Downtown Brooklyn, 14 in zipcode 11215 in Park Slope and parts of Gowanus (up from just 2 in 2005), and 8 in zip code 11217, in the part of Downtown Brooklyn and Fort Greene that includes the area around the Brooklyn Academy of Music. The number of large establishments in this category was up from 58 in 2005 to the 97 in 2015.

Four additional zip codes accounted for another fifth of the total large establishments in all consumer-related sectors in 2015. There were 71 such establishments in zip code 11234, which includes Marine Park, Mill Basin, Flatlands – and the Kings Plaza Shopping Center and nearby retailers. And 67 in zip code 11215 in Park Slope and parts of Gowanus and Windsor Terrace. There were 60 in zip code 11217, the part of Downtown Brooklyn and Fort Greene that includes the Atlantic Terminal Mall. And 50 in zipcode 11209, in Bay Ridge.

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The two zip codes with the most large establishments in consumer-driven sectors in 2015 also experienced the most growth in large consumer-related establishments between 2005 and that year. Williamsburg, in particular, seems to be reclaiming its status as a second “downtown” that it held a century ago, as a hub of the “eastern division” of the BRT railroad/transit system. While the number of large establishments in 11201, Downtown Brooklyn, increased substantially from 107 in 2005 to 172 in 2015, the number in 11211, Williamsburg, more than tripled from 24 to 79. These two zip codes along accounted for one-third of the increase in large establishments.

Meanwhile, the number of large establishments in consumer-related sectors in zipcode 11234, which includes Marine Park, Mill Basin, Flatlands – and the Kings Plaza Shopping Center and nearby retailers – fell from 81 in 2005 to 71 in 2015. The number in the Retail Trade sector alone fell from 58 to 54. The other big loser during the 2005 to 2015 period was zipcode 11235 in Sheepshead Bay, Manhattan Beach and Brighton Beach, with a decrease from 37 to 30.

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For establishments with 1 to 19 workers in consumer-based sectors, one finds that one-fifth of those in Brooklyn were located in just three zip codes. Two were among the usual suspects, zipcode 11201 in Downtown Brooklyn/Brooklyn Heights, with 996 and zipcode 11211 in Williamsburg, with 691. The third is zipcode 11220 in Sunset Park, which had 658 such establishments. This zipcode includes the very active Latino “main street” along 5th Avenue, and Brooklyn’s first Chinatown along 8th Avenue.

Zipcode 11220 is the first of a series of four zipcodes with high levels of consumer-driven businesses with 1 to 19 employees, roughly following the path of the Sea Beach subway line (N train). The areas included are zipcode 11219 in Borough Park, zipcode 11204 in Borough Park, Parkville and Bensonhurst, and zipcode 11223 in Bensonhurst, Gravesend and Midwood. These zip codes had 559, 560 and 442 establishments respectively. Together with two more zipcodes, these three account for another one-fifth of the total establishments in the category in Brooklyn.

The other zipcodes are 11206 with 460 establishments, and 11203 with 440. The first had been the heart of the Broadway commercial corridor between Bushwick and Bedford Stuyvesant before it burned in the 1977 blackout and riots. And zipcode 11203 is in East Flatbush, a West Indian area that includes commercial corridors on Church Avenue and Utica Avenue.

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The number of small establishments in consumer-based sectors increased almost everywhere in Brooklyn from 2005 to 2015, with some of the leading gainers among the usual suspects. Zipcode 11201, in Downtown and Brooklyn Heights, went from 845 such establishments to 996, for an increase of 151. Zipcode 11211, in Williamsburg, went from 461 to 691, an increase of 230.

Large gains were also found in zipcodes farther from Manhattan, however. Zipcode 11220 in Sunset Park went from 400 such establishments to 658, an increase of 258, the largest increase of any zipcode. In zipcode 11206, including the Broadway Brooklyn corridor, the increase was from 268 to 460, a gain of 192. Zipcode 11205 also added 192 places of business in the category, doubling from 177 to 369. It is located in Fort Greene and Clinton Hill, to the immediate south of the Brooklyn Navy Yard. Finally, zipcode 11219 in Borough Park added 149 such places of business, increasing from 410 to 559.

The big news here seems to be the revival of previously downtrodden but once extremely active commercial areas of north Brooklyn. And the great vitality of Borough Park, one of Brooklyn’s three major Hasidic Jewish areas. Borough Park, as noted in the prior post, also had an unexpectedly large number of office-based businesses. Finally, East Flatbush seems to be more of center of consumer-based businesses than nearby Downtown Flatbush, which had rivaled Downtown Brooklyn in the 1950s. It is the heart of Brooklyn’s West Indian community.

All told Brooklyn had 12,579 businesses in consumer-based sectors with 1 to 19 employees in 2015, up from 9,193 in 2005, according to Zip Business Patterns data. Mom and pop businesses with no non-family employees would be on top of that.

Of these 9,290 were in the Retail Trade sector, up from 7,675 in 2005. Neither the influx of larger retailers into Brooklyn nor the rise of the internet seems to have hurt Brooklyn’s small stores, at least through 2015. The zipcode with the most small retail establishments was 11220 in Sunset Park with 627, up from just 382 a decade earlier.

The number of such establishments in the Accommodation and Food Service sector increased even faster, from 2,739 to 4,935. Zip code 11220 in Sunset Park added the most small establishments in this sector, with a rise from just 127 to 302, but the zipcode with the most was 11211, in Williamsburg. It had 339, up from 170. Coming in third for eating out was zipcode 11215 in Park Slope and parts of Gowanus and Windsor Terrace, with 285 up from 175. In zipcode 11238, Fort Greene, Clinton Hill, and Prospect Heights, the number more than tripled from 53 to 189.

The number of Brooklyn establishments in the Arts, Entertainment and Recreation sector with 1 to 19 employees increased from 429 in 2005 to 879 in 2015, more than doubling. The leading zipcodes in this category are 11201 Downtown with 106, up from 48; 11215 in Park Slope with 103, up from 56; 11211 in Williamsburg with 80, up from just 37; and 11217 in Downtown/Fort Greene including the BAM Arts District with 63, up from 37. In zipcode 11222 in Greenpoint, near Williamsburg there were only eight establishments in this category in 2005 according to the data, but there were 56 in 2015. In zipcode 11238, Fort Greene, Clinton Hill, and Prospect Heights, the number tripled from 20 to 60. Presumably not all yoga studios.

As for Other Services, such as beauty parlors, dry cleaners, and repair shops, the number in Brooklyn with 1 to 19 employees increased from 4,187 in 2005 to 5,459 in 2015. Zipcode 11220 in Sunset Park had the most establishments, with 301, and the largest increase at 110.  Presumably not all dog walkers.

So what is attracting all these retailers and consumer services?   One possibility is population, as measured by 2011 to 2015 five-year average data from the U.S. Census Bureau’s American Community Survey.

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Despite their more suburban look today there tend to be more people in the zipcodes further out from Manhattan around the borough southern rim than in the “gentrifying” areas closer to Manhattan. These zipcodes have less non-residential land and larger households. The zipcodes around the southern rim, once populated by semi-suburban Brooklynites whose families stayed in the borough rather than moving out in the urban decline era, are now substantially populated by immigrants and their offspring.

Zipcode 11211, where millennials have been forced to cram into apartments with roommates and Hasidim have large families, is an exception — the close-in area with the most people. It has been densely populated since the completion of the Williamsburg Bridge allowed Jews and Italians to move out of the Lower East Side in Manhattan.

Among the zipcodes with the largest populations are 11236 in Canarsie and 11226 in Flatbush. Neither of these areas has a similar concentration of consumer-based businesses. Downtown Flatbush was at one time a far more active business center than it is now. The zipcode with the most people in Brooklyn, on average, from 2011 to 2015 was 11220 in Sunset Park. Zipcode 11219, in Borough Park, is another highly populated zipcode.

What really appeals to new consumer-based businesses, however, is new people moving in. From 2011 to 2015, Brooklyn had an average of 461,389 people ages 25 to 34, including an average of 35,686 who reported having moved in during the past years. Which would be 178,430 in that age group who moved in over five years, if none moved out. These are huge numbers. Moreover, of the average of 35,686 who moved in during the past year, just 6,558 reported doing so from abroad, compared with 16,452 from elsewhere in New York State and 12,675 from other states.

There was a time, say in 1990 and earlier, when relatively few people moved to Brooklyn from other parts of the U.S., and even these were concentrated in a few neighborhoods such as Brooklyn Heights and Park Slope. Most of those who moved to New York City from the rest of the U.S. moved to Manhattan. Most of those who moved to Brooklyn (and Queens) were immigrants. Not so in the 2010s. This is a huge difference in Brooklyn – fewer immigrants, more in-migrants from other parts of the U.S.

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While zipcodes 11201 in Downtown Brooklyn/Brooklyn Heights and zipcode 11215 in Park Slope/Windsor Terrace remain prominent with regard to in-migrants, a significant number of young adults moved to many other zipcodes in West and North Brooklyn. Relatively few young adults moved to the borough’s poor eastern neighborhoods or semi-suburban southern rim.  These are the areas where large numbers of immigrants were moving not long ago.

In the end, however, for consumer-driven businesses perhaps Randy Newman said it best. It’s money that matters. Or does it?

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Four zip codes account for one-fifth of the income earned by residents of Brooklyn. The zipcode with the highest total is 11215 in Park Slope and the part of Windsor Terrace where I live, with $4.3 billion for a year. Its per capita income of $60,565 is the second highest. As I tell my daughters if I had known how trendy Brooklyn would become they would have grown up in Queens. Or perhaps in my native 10701.

Next is 11201 in Downtown Brooklyn/Brooklyn Heights/Dumbo. Second in total income at $4.0 billion, it is first in per capita income at $68,420. Zipcode 11211 in Williamsburg has a per capita income of just 33,000, but with 97,770 people it has a large total income of $3.2 billion. And down on the southern rim, zipcode 11234 in Marine Park/Mill Basin/Flatlands has $3.0 billion in total income.

On the other hand, high on the consumer-driven business list, but low on the income list, are zipcode 11220 (Sunset Park) at $1.7 billion and 11219 (Borough Park) at just $1.45 billion.

Over on the other side of the borough one finds zipcode 11212, in Brownsville, one of the poorest areas of Brooklyn. But the total income in that zipcode, $1.41 billion, is not that much lower than in Borough Park, in part because its population, at 88,700, is slightly larger. This area includes the very active “main street” along Pitkin Avenue, the once-Jewish center where the hotdog was invented. And yet the number of business establishments in consumer-driven sectors in 11219, Borough Park, was 559 in 2015, up from 410 in 2005. The number of such establishments in 11212, Brownsville, was just 291, up from 246. But given what has happened elsewhere in the borough, perhaps Brownsville may one day be the center of business activity it was 80 years ago.

Meanwhile, out in suburban and Sunbelt America, just in the past few months they have faced a retail meltdown similar to what Voorhees Walker Smith & Smith thought New York City was facing six decades ago. A large number of bankruptcies of prominent national retailers, and the downsizing of others, seem to have left the world of shopping centers in a state of shock.

http://www.marketwatch.com/story/amazon-isnt-the-no-1-villain-in-retail-sectors-demise-2017-08-02

Retail stocks have been annihilated recently, despite the U.S. economy eking out growth. The fundamentals of the retail business look horrible: Sales are stagnating and profitability is getting worse with every passing quarter.

Jeff Bezos and Amazon.com get most of the blame for this, but the criticism is misplaced. Nowadays online sales represent just 8.5% of total retail sales. Amazon, at $80 billion in sales, accounts for just 1.5%of total U.S. retail sales, which at the end of 2016 were around $5.5 trillion.

All this brings us to a hard and sad reality: The U.S. is over-retailed. We simply have too many stores. Americans have four- or five times more square-footage per capita than other developed countries. This bloated square footage was created for a different consumer, the one who in the ‘90s and ‘00s was borrowing money against her house and spending it at her local shopping mall.

Today’s post-Great Recession consumer is deleveraging, paying off debt, spending money on new necessities such as mobile phones, and paying more for the old ones such as health care.

If you prefer the same story illustrated with pictures…

Postcards From the Zombie Apocalypse

The next Zombie Apocalypse will relentlessly dismantle superficial decorative landscapes and highly leveraged economies of scale. Take away the twelve thousand mile just-in-time supply chains, heavy debt loads, and limitless cheap resources and you get a very different world. Over the long haul Main Street has a pretty good chance of coming back along with the family farm. But the shorter term in-between period of adjustment to contraction is going to be rough as existing institutions attempt to maintain themselves at all costs.

In a true irony, spaces built to sell Americans stuff they didn’t need and couldn’t afford may be repurposed as places to leave all that stuff they don’t even have room for.

https://www.bizjournals.com/memphis/news/2017/06/27/this-use-could-breathe-new-life-into-empty-stores.html

The latest adaptive-reuse project for the dying retail developments are self-storage projects…There have been retail spaces opening with the demise of Sports Authority, furniture stores as well as other chains and department stores. Some spaces locally have been taken over by Mountainside Fitness, but others are being eyed for self-storage. They also see continued growth in self-storage projects in Arizona and across the U.S. Nunez said she gets increasing calls from retail brokers asking to see if their projects might be able to house self-storage facilities.

Nothing is easier for a retail landlord than to rent to a national retailer, with the lease payments guaranteed by the revenues of the entire company, not just one location. That, not lower prices or better service, is the advantage that large national retailers had over small stores and local chains.

The national retailers, however, are only good for the real estate until they start going bust. These days, in many places and cases the sale of retail real estate implies the building is worth nothing, and the entire value is in the lease and the financial strength of the tenant. And what everyone seems to want to buy is freestanding drug stores, particularly Walgreens, since most of the revenues of that chain come not from broke Americans, but from the federal government.

It would appear that they’ll have to get creative out in suburban and Sunbelt America. Then again, from the point of view of someone trying to start a business, creativity is much more affordable if the rent is really low.

The final post in this series will be on the hottest form of commercial real estate, industrial, and the trend in industrial establishments in Brooklyn.