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Originally published July 30, 2011 at 9:01 PM | Page modified July 30, 2011 at 11:01 PM

Developers struggle to get ground-floor retail leases

Developers and landlords throughout the region are still struggling to fill ground-floor retail space that sprouted up before the recession.

Seattle Times business reporter

Street-level businesses

There are nearly 4,700 occupied businesses on the first floor of apartment and office buildings in downtown Seattle. Over 3,750 of those fall into the retail and services category.

Art: Two-thirds of downtown's 128 art galleries are in West Edge (roughly from Pine Street to Yesler Way), Pioneer Square and Belltown.

Auto/Boat: Nearly half of auto, boat sales and businesses are in South Lake Union.

Clothing and Accessories: 73 percent are found in the West Edge and the retail core.

Home and Office Décor: 27 percent are found in the West Edge, followed by Sodo with 19 percent and Pioneer Square with 17 percent.

Financial: 31 percent are concentrated in the retail core.

Source: Downtown Seattle Association

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They're all over — newly constructed office and residential buildings sitting over a wealth of emptiness on the first floor. The signs in the windows read: "retail space for rent."

Developers and landlords throughout the region are still struggling to fill ground-floor retail space that sprouted up before the recession.

Finding the right occupants for such spots "is a lot of brain surgery for not a lot of return," said Tom Graff, president of the commercial office at Ewing & Clark.

He has been on the hunt for retail tenants since construction of Aspira Apartments, a 37-story high-rise at Terry Avenue and Stewart Street in downtown Seattle completed last year. Location, parking issues and costly tenant improvements, such as plumbing and bathroom installations, make ground-floor retail a challenging proposition, he said.

"If you're facing Nordstrom, your space is going to get leased. But what about the other hundred blocks of downtown?" Graff said.

In heart of Seattle

In downtown Seattle, retailers and services account for 71 percent of all street-level businesses, according to the Downtown Seattle Association (DSA). It includes cafes, restaurants, yoga studios, hair salons, banks and boutiques that generate an active street life.

"Retailers are magnets for pedestrian foot traffic in downtown," said Kate Joncas, president at the downtown association. "They're the sizzle on the steak."

But with the retail market's slow recovery, empty ground-floor spaces are becoming a headache for landlords.

"We have more small-shop retail space than there are tenants for, and it will be that way for a few years," said Jeremy Moller, commercial real-estate broker with JSH Properties.

At the end of 2010, about 300 such retail spaces were vacant in downtown Seattle, the association reported. Jon Scholes, the association's vice president of advocacy and development, blamed the lack of market-rate housing in downtown Seattle for keeping retail down.

"Retail follows jobs, residents and tourism," he said. "We've seen lots and lots of jobs follow new development, but we need residents to round out the market for retail."

Scholes said the Downtown Seattle Association is most concerned about Pioneer Square, the Chinatown International District and Belltown, where retail vacancies are the highest and lack the most affordable housing. Over the next 12 to 18 months, new housing projects in areas such as South Lake Union should help to fill the void, he said.

Suburban woes

Vacancies outside the downtown core have prompted city leaders to propose eliminating the requirement that developers include ground-floor space for businesses in apartment projects for neighborhood commercial districts.

Roger Valdez, who writes a blog about Seattle's land-use codes, said current zoning constrains the natural supply and demand of what makes for a successful project. Outlying areas, where there are many streets with low volumes of foot traffic, are suffering most, he said.

"There are areas where commercial use doesn't make a lot of sense," said Bryan Stevens, spokesman for Seattle's Department of Planning and Development.

He said neighborhoods such as Capitol Hill, Green Lake and Fremont would benefit from the change because while some streets are zoned for commercial use, many others are residential.

Community land use and economic groups have recommended that the city keep shops clustered in shopping centers instead of spread out throughout a neighborhood.

That's why requiring retail space in neighborhood areas is the wrong strategy for both business and the city, said Steve Johnson, director of Seattle's Office of Economic Development.

"Businesses congregate where there is a synergy," he said. "By requiring them to spread out over large areas, we are reinforcing the development the city should be moving away from."

Mixed reactions

Developers building projects in neighborhood areas view the proposal as good news. "Having the flexibility to decide what works for my project is something the zoning code hasn't included in the past," said Bruce Lorig, manager of Lorig Associates, developer of a mixed residential and retail project where Vitamilk Dairy once operated in Green Lake.

He said current rules require developers to create retail space, then find the right tenants or bear the expense if the space is left empty.

Not everyone welcomes the proposal, though.

Ellen Hewitt, a Green Lake homeowner, said she doesn't want any changes that would make it easier to build office or apartment buildings on quiet streets.

"Adding more construction to the unfortunate overbuilding that took place in the recent past would damage the neighborhood," she said. "We are a neighborhood community; we are not here to provide more density."

Some concerns

Charles Staadecker, owner of real-estate brokerage firm Staadecker Real Estate, said while he supports the idea, he too has concerns.

"The idea of a flexible policy is a good thing," he said. "But I hope the city would encourage developers to elevate retail as a priority rather than default into just creating another apartment building."

The Circa Green Lake Apartments, on East Green Lake Way, is one of the neighborhood projects that would be affected by the proposal. Its ground-floor space is currently about 20 percent vacant, according to CB Richard Ellis.

Zoëyogurt, a frozen-yogurt shop, leased a storefront in the building in March. Months later, the space next door still sits empty.

"Getting retail space filled up here is taking a little longer than we expected," said the shop's owner, Tom Hudson.

But he's hopeful the empty space will fill up and contribute to a vigorous neighborhood business scene. A restaurant or clothing store, rather than another apartment, would complement his shop and increase foot traffic, he said.

"Having residential above and commercial below is really the only way I would like to see things," Hudson said.

Dennis Meier, strategic adviser for Seattle's Department of Planning and Development, said a boost to vacant storefronts, especially in downtown Seattle, should follow increased leasing activity in the office and residential markets this year.

That was the story for Graff of Ewing & Clark, who said downtown strollers can soon expect to walk by Aspira Apartments and see a restaurant and a hair salon.

"Retailers on the ground floor are a much more delicate flower, because they are dependent on the whims of the shoppers," he said. "When you add strong office tenants and residents into the mix, that will help lease the empty space and keep it filled."

Christine Harvey: 206-464-3263 or charvey@seattletimes.com

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