Local Businesses in New Developments

Make Room for Local Businesses in New Developments

Require new developments to include existing businesses on agreeable leases.

Small businesses in Kent, Washington, south of Seattle (photo by authors)

What's the issue?

As we mentioned in our Who is Vulnerable analysis, small businesses play a key role in protecting low-income residents from the negative effects of gentrification. However, they themselves become vulnerable to displacement if in-migration changes their local customer base and commercial rents rise.

How does this policy help?

One way to harness the benefits of growth for small businesses is to include them in new commercial development. A tenant inclusion policy would require developers to set aside space for independent local businesses as tenants. Some communities already demand set-asides for local retail as part of Community Benefits Agreements negotiated for specific projects. If this demand is expanded to include all commercial development in a city's gentrifying neighborhoods, it will need to be flexible to take into account local differences in the small business landscape. For instance, some areas may have few small businesses to begin with. In this case, the city should work with developers to provide opportunities for community ownership and micro entrepreneurship. The success of this policy will also depend on leases that are "friendly" to small local businesses but do not make commercial development financially impractical. Therefore the city has a responsibility to facilitate fair negotiations between real estate managers and small business tenants. For more ideas on how to preserve local small business, the Pratt Center's recommendations for New York City are a great place to start.

When and where does this policy work best?

Clearly, this policy is most promising in communities where small businesses serve as integral job creators and cultural cornerstones. For example, in Los Angeles, culturally rich commercial corridors like Crenshaw Boulevard have become a major draw for gentrifiers, ironically placing their small businesses at risk for displacement or failure. A successful local tenant inclusion policy would help these small businesses capture the benefits of new development instead of competing with it.

Works best for neighborhoods in middle-stage gentrification

Works best when neighborhoods are/have...

What are some problems and how can we address them?

The main challenges to implementing this policy are first, tailoring it to specific neighborhoods so that it does not require set-asides for businesses that do not exist, and second,   ensuring that leases satisfy both small business tenants and commercial real estate developers. If policymakers overcome these two challenges, they will promote local income recycling and secure the opportunity for entrepreneurship for disadvantaged groups. Just as importantly, they will preserve the local character which often makes neighborhoods so attractive for gentrification to begin with.