Detroit's skyrocketing rents threaten longtime shops
Ashley Zlatopolsky
Special to the Detroit Free Press
Grace Harper Florist owner John Kewish doesn't know how much longer his flower shop can survive in Midtown.
With downtown Detroit's Henry the Hatter, the oldest hat retailer in the U.S. losing its lease last week, the news of the shop shutting down raises the question of whether longtime businesses are being forced out of the city.
Kewish saw his rent climb from $500 a month when he took over ownership of the Woodward business 20 years ago to $3,450, with a $650 increase in the past 12 months alone. Now, his landlord is asking for an additional $100 a month for rent for the next five years. He claims he can get $5,000 for the place, but Kewish says it isn't in great condition.
"The past few years (rent has) gone up dramatically," he notes. "Just goes with the territory, you know?"
Detroit is undergoing dramatic reinvestment, with a changing and often unpredictable landscape for small-business owners.
Some, like Bucharest Grill, were displaced by landlords who had other plans for their spaces. The Middle Eastern restaurant was given no choice but to leave its longtime location at the Park Bar in downtown Detroit to open doors elsewhere.
Others have been hit hard by months of construction of the QLINE and other renovation projects. But many have also seen an uptick in customers, the most in years with huge increases in people working, living and visiting the greater downtown area.
It's a mixed bag of feelings for Woodward business owners.
"The renewal of the Woodward Corridor will likely stimulate the redevelopment of nearby residential areas," says University of Michigan professor Dr. Ren Farley, who is an expert in population studies and urban structure. "However, if redevelopment along Woodward continues, the value of properties and rents will soar."
In Ann Arbor, where he works, Farley says rents for stores went "way up" after IT firms and new condo developments moved into the downtown area. Detroit is experiencing the same change.
But, says Farley, a changing business landscape is better than stores shutting down and then remaining empty, "which is what was happening in downtown Detroit for decades."
Detroit market trends data as recent as last year show an increase of 16.4% in the median asking price per square foot for retail commercial properties, compared to an increase of 11.7% the year prior. The numbers don't seem to be slowing any time soon, following a steady climb over the course of several years.
"If the rent gets too high, I'm going to have to move," says Kewish. "I'd hate to leave the location after all of these years of being down here."
Kewish's landlord couldn't be reached for comment.
Grace Harper Florist has been in its Woodward location since the mid-1960s, but Kewish doesn't know how much longer he can stay.
Some blame gentrification for longtime merchants like Henry the Hatter having to leave— businesses that committed to the city for decades, even when times were bad.
"All these people have been here for so long and now that there's progress, they're squeezing us out," says Kewish. Going month-to-month with rent, he's been forced to scout out new locations for his flower shop in case he, too, has to leave.
QLINE construction
Roughly three years of QLINE construction sent business down 75% for Roby's Shoes, located on Woodward just off East Milwaukee Avenue. "We were lucky if we got one customer a day," says Sharil Roby, 59, who owns the shop with her husband, Jeff.
If the Robys didn't own the building, she isn't sure if their shoe store, which specializes in harder-to-find women's sizes up to 13WW, would have survived. "Numerous buildings (leased) on our block went out," she explains.
It became too hard for many to pay rent and utilities with lost revenue, she says.
"The area took a big, big dive."
For a year to a year-and-a-half, she notes, business plummeted. "There were days where we were lucky if we got $50."
Roby's Shoes has operated out of the Woodward location since 1979. The area was booming then, says Sharil, who had moved the store from Grand River and Oakman to its current spot. It was a flourishing neighborhood.
"There used to be a Crowley's, Woolworth, Winkelman's… good stores were around here," she recalls. "There was a Sanders across the street — business was totally filled."
Riding out QLine construction was similar to riding out Detroit's economic drop in the 1980s, when many of the city's iconic retailers closed, she says. "I think we needed the rail for people," she notes. "Business is increasing (now that it's running)."
She notices more walk-ins from students and younger adults, which wasn't her typical customer base. Before, Roby's Shoes catered mostly to a female "church crowd," says Sharil. She's even started carrying different styles of shoes to better suit the needs of her customers, like glittering high-top sneakers.
Now, she sees people walking around, bicycling outside her shop. "I think the area is on its way back," she says. "People take the QLINE up and wander in, make some purchases. It's good for us."
Waiting out the hard times, she says, was worth it. "All of the changes taking place are good changes."
Dave Kwiatkowski, 40, who owns restaurant Wright & Co. with his partner, Mark Djozlija, opened for business during QLine construction. The weekend they opened their doors in July 2014, their intersection of Woodward and John R was torn up.
Located on the second floor of the Schwankovsky Building at 1500 Woodward, Wright & Co. managed to thrive despite having the odds against them. "The timing was bad because we didn't know when they were going to start," says Kwiatkowski.
They were fortunate that they were still busy, he says, which contributes to their second-floor location. "Construction is just a necessary evil for the sake of development and transportation," he continues. "Being on Woodward is important to the identity of being a business owner in Detroit. It's the main drag."
Most of the buildings around Wright & Co. were vacant when they moved in, Kwiatkowski recalls, and now they're filling up with first-floor retail and offices and apartments on the floors above. "When you go to Campus Martius now, it's like Chicago down there," he says. "Just wild how many people."
Rachel Lutz, owner of Frida and The Peacock Room in the Park Shelton, notices better walkability and increased foot traffic in Midtown. The shop owner recently announced her third Detroit store, Yama, a women's clothing shop set to open in the Fisher Building this fall. She also announced that Frida would double in size.
"After the QLINE was completed, I've never seen so much foot traffic on Woodward during the day in my life," says Lutz, 37. "It's led to a lot of exploratory foot traffic — these are folks with or without a destination in mind."
Just the other day, she notes, a couple from Luna Pier walked into one of her stores. She asked what they were doing in Detroit, and they said they "wanted to check out the QLINE and walk around."
Lutz has an agreement with her landlord to keep running a small business affordable, but knows that not all business owners who lease on Woodward, like Kewish, have the same luck.
"I am very concerned for other businesses as the rent dramatically rises," she explains. "I'm worried about existing and longtime businesses who have stuck it out during difficult times and are now struggling to get sustainable rates for their leases."
"It's a very real threat," she adds. "It's definitely a concern for me as my business grows and the neighborhood keeps up. How sustainable is my presence there in the long term?"
Lutz says one of the main reasons she was drawn to Detroit was because of its independent shops. "It would be devastating to lose the businesses that give character to the neighborhood."
Nonprofit steps in
Midtown Detroit Inc., a nonprofit agency that supports the Midtown neighborhood, has assisted businesses in times of need. During rail construction, it helped with rent, outdoor storefront improvements and leasing parking spaces.
Some of the businesses hardest hit suffered because the side streets they were near had closures, she explains. Included are Union Street and Hopcat.
"We lost some 300 spaces on Woodward and even more during construction," says Midtown Detroit Inc. executive director Sue Mosey. "It discourages customers when there's a lot of chaos and construction going on."
Now with the rail completed, they see more people walking around and fanning out into the neighborhood. "I think most of the businesses are definitely recovering from a number of years of reduced revenue sales," Mosey explains.
She says Midtown Detroit Inc. is also trying to recruit businesses that reflect the needs of the neighborhood, based on a recent consumer survey. These include bodega-style grocery stores, salons and casual fitness options.
Yet with the recruitment comes an equally pressing need to help business owners who have stuck around in Detroit for decades to stay in their current locations. It's a balance that must be met.
Mosey says commercial rent rates generally fall between $17-$32 per square foot for triple-net leases in Midtown and New Center. Rate depends on location, condition of property, tenant improvement allowance and how long the tenant is willing to sign a lease for.
Most Midtown businesses, she says, have long-term leases in place so they haven't felt the market spike. "When leases expire you will see rental rates reset to current market, which is significantly higher than what they would likely have been under current leases. This may be challenging for some of our current tenants or for those who are month-to-month."
A June 2017 Downtown Detroit Development Report from CBRE Research states that throughout the greater downtown area, an estimated 72 projects were recently completed, currently under construction or proposed. Of the 72, 30 are new construction, 40 are conversion and two are a combination.
Downtown and Midtown are experiencing the most development activity, with Quicken Loans owner Dan Gilbert and the Ilitch family as the top two investors. According to the report , the QLINE is expected to stimulate more than $7 billion in economic development within the next decade.
The report also shows that 96 storefront businesses have opened or expanded in Midtown and New Center from 2013-16. From the various projects in play, the greater downtown area has just over one million square feet of retail space under construction or expected to be complete by 2020.
"The city's economy is growing," explains Michael S. R. Rafferty, vice president of small business services, Detroit Economic Growth Corp. "More people are working. More people are visiting the city."
Market demand is putting pressure on downtown retail space, but the demand is driven by higher retail sales from the influx of new residents, workers and visitors to the area, Rafferty says. In the case of Henry the Hatter, DEGC is speaking to owner Paul Wasserman, 70, about different options to keep a store open in Detroit. They're looking at vacant spaces around the central business district and new construction as potential homes for the longtime business.
"Economic development is not a 'zero-sum' game where any new business has to replace an older one," says Rafferty. "It is a process to create more for everyone."
Ashley Zlatopolsky is a Detroit-based writer. Follow her on Twitter @ashley_detroit.