What Makes a Successful Downtown Business District?
In 1888 Stanford imposed deed restrictions prohibiting the sale or consumption of alcohol within 1.5 miles of Stanford campus. Stanford Shopping Center opened in 1960 with free parking while downtown had parking meters. Downtown store vacancies soared and business vitality dropped. In the late 1960s and early 1970’s downtown Palo Alto was a failing retail area with little evening activity. Prohibitions on liquor and competition from Stanford Shopping Center had a big negative impact. It began to change in December 1970 when a lawyer named Frank Crist won a lawsuit overturning the liquor prohibition for a restaurant in the President Hotel.
By May 1971 liquor was being served there. It happens that I was living at the President Hotel then and in May 1971 was one of the first people to have a legal drink (beer) with a meal at the President restaurant. In 1971 the downtown parking meters were discontinued and removed. A downtown parking district with businesses paying fees to build parking lots and garages was adopted. In 1978 all remaining restrictions on liquor sales in Palo Alto within 1.5 miles of Stanford were eliminated. Restaurants began to open downtown with liquor licenses, and business improved. Now Palo Alto’s downtown is recognized as a successful and vibrant business district. At times it has been cited as one to be imitated by Redwood City, Mountain View, Menlo Park and Campbell. The range and variety of retail establishment’s make it a vital destination. What makes it work well and how was it achieved?
In 1987 efforts to promote downtown retail got serious. Limits were set on total development square footage with no single use allowed over 25,000 sq. ft. That limited sites that could be occupied by big box stores making smaller local businesses more competitive. A ground floor retail zone was established prohibiting or greatly limiting ground floor office use, favoring retail on ground floors. The area of this zone has changed and slightly shrunk over time, but the basic principal remains. Ground floor retail uses include a mixture of restaurants, retail shops selling things like clothes, furniture, art, electronics, bookstores, theaters, and services such as hair and nail salons.
Presence of single family and apartment housing in Downtown North and Professorville plus many downtown office workers provides customers for retailers. Residents and workers tend to be higher income so they can and do spend more at local businesses, further enhancing commercial vitality. The result has been low vacancy rates and high rents. Since 1987 ground floor vacancy rates regularly were below the nominal full occupancy rate of 5%; the only major exception was 2009 when the Great Recession resulted in a downtown vacancy rate of 10%. By late 2011 that rate was down to 2.0% overall, 4.8% in the ground floor retail area. Business recovered rather quickly.
One important factor is the high rents charged for downtown sites. Currently they range from $3.50 to $5.00/sq. ft./month, compared to $2.25 to $3.50 for downtown space elsewhere. During the peak of the dot-com boom in 1999-2001 rents downtown ran $7.00 – 9.50/sq.ft./month, some of the highest in the world.