BY BRADEN CARTWRIGHT
Daily Post Staff Writer
Support for a vacancy tax is gaining traction in Palo Alto as a potential way to clean up University Avenue and encourage property owners to reduce their rents.
Council members are feeling like downtown Palo Alto is second class to places like downtown Burlingame and the Stanford Shopping Center, and a vacancy tax is one of their ideas to turn things around.
“For those of us who have known the downtown for decades, it really has gradually deteriorated in its condition and its attractiveness to retail,” Councilman Pat Burt said at a Retail Committee meeting Wednesday (Aug. 21).
“Things are passing us by. Other cities are eclipsing us,” Councilwoman Julie Lythcott-Haims said.
Lythcott-Haims and Councilwoman Lydia Kou have been pushing for a vacancy tax in Palo Alto.
Burt, who was previously skeptical of the idea, said Wednesday that he would be open to a tax on long-term vacancies if the revenue is reinvested into improving downtown.
“There would be a lot more support for that concept if it was clear that the dollars were going to go into helping the downtown and everybody there — property owners and tenants alike,” Burt said.
Drug dealing at Lytton Plaza and homeless encampments in parking garages need to be addressed, Burt said.
“Those kinds of things are real detriments to the community going there, and to businesses,” he said.
Burt said downtown property owners have been around for a long time, so they have low debt and low property taxes.
In downturns, property owners have declined to lower their rents and kept their storefronts empty so they can find a premier tenant, Burt said.
“They can afford to wait it out … They just have faith that this would recover,” Burt said.
But online shopping, remote work and more competition from the Stanford Shopping Center have changed the equation, Burt said.
Lythcott-Haims said investors don’t have the same interests as the city, and a vacancy tax would help get them on the same page.
“We have to inject some other mechanism into this supply and demand equation that is off. Because the business owner’s rational, economic self-interest doesn’t align with the city’s needs,” she said.
City Manager Ed Shikada said he would talk to City Attorney Molly Stump about pursuing a vacancy tax.
Kou said she wanted a timeline to ensure the proposal returns to council.
“I brought that up many years ago and wanted to explore that, and it hasn’t happened,” she said.
Burt was more skeptical of a vacancy tax in April because he said the city still had “a lot of healing wounds” from a business tax passed in November 2022.
“I’m not sure we should leap with both feet into that at this time,” Burt said at a council meeting in April. Burt is in his 12th year on council and is running for re-election in November.
Councilwoman Vicki Veenker said in April that some businesses might actually like a vacancy tax because it could lead to fewer vacancies.
That makes a majority on council who are interested in the idea, including all three members of the Retail Committee.
Vacancies in downtown Palo Alto reached 15% in the first quarter of 2024.
That’s the highest rate in more than 25 years — a span that’s included the dot-com bubble burst and the Great Recession, according to a report from consultant Michael Baker International.
From 2014 to 2020, the downtown vacancy rate stayed between 0% and 6%, and then went to 9% during Covid and never recovered, the report said. The asking price per square foot is between $75 and $80 for downtown retail space and has been in that range since 2020, Michael Baker International’s report said.
Downtown spaces stay vacant for an average of eight and a half months, the report said.
To address the vacancies, council hired two consultants, established a Retail Committee and created a new position in Shikada’s office dedicated to economic development, filled by Assistant to the City Manager Steve Guagliardo.
Consultants don’t think a vacancy tax is a good idea. Instead, the city should relax its restrictions on what kinds of businesses are allowed to open on the ground floor, said Larisa Ortiz of Streetsense and Dan Wery of Michael Baker International.
“The layers of regulation cause confusion among property owners, developers and tenants when trying to understand what they are allowed to do on their property,” Ortiz wrote in a July 2023 report, which cost the city $261,995.
Council’s Retail Committee will discuss Ortiz and Wery’s recommendations on Sept. 18.
Councilman Greg Tanaka, who opposed the city’s business tax, is also against a vacancy tax because he said it would be “salt in the wound” for struggling businesses.
“We’re already going through a big recession, especially in technology. People are working from home. People are not coming to our city to work any more.
Businesses are leaving,” Tanaka said in April.
Landlords get some value from keeping their options open, economist Erica Moszkowski said in a Harvard study published on Nov. 16.“Different tenants may have different willingness to pay for the same space, creating an incentive for landlords to wait for a particularly high rent offer,” Moszkowski said in her study.
Council thinks a tax will suddenly fill the vacancies. The downtown has vacancies because
1. many workers are doing their jobs from home and many employers have shrunk their footprint
2. downtown has become a filthy, crime ridden place. People avoid it.
If the council gets their way, the landlords will avoid the tax by leasing to vape-stores, massage parlors and liquor stores.
My teenage son informed me the Vans store is closed on University. No warning, no close out sale, nothing. Just turn off the lights, lock the door and leave. Very sad. Yet another youth oriented place, gone! No more soul in this town. Nothing to connect, cherish, honor, no loyalty . Just greed and rising costs, mean landlords.
What we need is more people and hundreds of new housing units downtown.
Fact – workers are not coming back and no one wants to commute. We need more local residents.
Fact – our city loses population each year and is already over retailed. We need more customers to support local biz and services.
Fact – local govt needs to GET OUT OF THE WAY and allow more types of retail/service uses. And why should any permit approval take more than 2 weeks? We are a tiny city and need to let those redic regulations and restrictions go. They are not serving us.
The vacancy tax “is one way to turn things around” because they’ve ignored YEARS of suggestions from residents for Asian Markets and Food Halls like those thriving in Los Altos and ignored what was happening next door: huge downtown concerts in Redwood City, night markets in Los Altos and Menlo Park, First Fridays, Wednesday Markets…
But why visit those towns or listen to residents when you can spend upwards of $5,000,000 on retail consultants with no local knowledge??
Palo Alto wouldn’t be in such bad shape if a long series of pro-density City Councils and mayors hadn’t worked so tirelessly to turn downtown in an office park while skirting the ballot initiative limiting office growth. And then they let big companies build company cafeterias to keep the employees in the office and away from downtown businesses.
But why use common sense when they can waste OUR money on laughable retail consultants? Why visit other communities to see their DECADES-old grassroots success with their First Fridays and Weds Markets started by town merchants?
Merchants like Footwear Etc explicitly blamed PA’s high rents for their departure and sent heir customers to neighboring cities like Los Altos which have vibrant downtowns for RESIDENTS and merchants that care about serving their communities without needing funding or much from the bureaucrats.
So while other cities moved forward long ago, it took PA 10 years to TRY to copy First Friday and waste upwards of $5,000,000 of OUR money on retail consultants with no local knowledge and laughably expensive surveys about streetscapes and signage without a single simple.
Putting up a simple PARKING THIS WAY sign without a survey isn;t the PA Way so we end up with Napping Pod recommendation which the homeless will love, shoppers not so much.
Downtown has plenty of vacancies because a succession of City Councils insisted on turning downtown into an office park while other communities serving residents continue to thrive.
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For decades they ignored residents’ suggestions for an Asian Market, a food hall like Los Altos has thanks to one of its late great rich residents, exciting events like Los Altos’ First Friday and Menlo Park’s Wednesday Market spearheaded by its small business owners, NOT by town governments,and which it took PA a decade to TRY to copy.
So other communities thrive while our “leaders” waste upwards of $5,000,000 on “retail consultants” with no local knowledge and so little oversight the consultants never even visit our fair city and produce silly surveys on signage and streetscape designs etc without a single simple option.
Where’s the oversight, fiscal responsibility and common sense???
I grew up in Los Altos and lived there until gentrification forced me out more than a decade ago. I mention this because it’s nearly impossible to imagine downtown Palo Alto in such dire straits; it was always much more vibrant — cooler, hipper — than its neighbors. What a shame. I’m glad I can’t see it now, so I’ll always, and only, remember being spoiled for choice of restaurants, a variety of unique (art & classic) movie theaters, and a fun, lively University Avenue for a walk and an ice cream after the show. What a shame things got so ensh*ttified.
Regret voting in Julie Lythcott Haims onto City Council. This woman should be stepping down as Palo Alto City Councilor after running a campaign where she did not fully disclose to the public her true reasons for being fired from Stanford University and the fact she abused her position of power as a rock star Dean of Undergraduate Admissions by having a sexual relationship with an Stanford undergraduate.
She is still sitting on City Council making terrible decisions and voting for City of Palo Alto motions? When will her ego ever take a back seat?
Step down already. Your actions Julie speaks volumes of your lack of ethics. We do not need you voting on council measures. For instance: Julie waited two months after she was elected to ask state agency about speaking fees she was collecting. Step down.
Ditto that!
Don’t forget that JLH had the hubris to run for Congress in the primary, and she got just enough votes to keep Joe Simitian from going to the November runoff. With her, it’s always about Julie. Yes, she should STEP DOWN!