HomeMy WebLinkAboutStaff Report 2409-3445 / Staff Report 2409-3446CITY OF PALO ALTO
Policy & Services Committee
Special Meeting
Wednesday, September 18, 2024
9:00 AM
Agenda Item
2.Economic Development Activity Report, Late Packet Report, Presentation
Retail Committee
Staff Report
Report Type: ACTION ITEMS
Lead Department: City Manager
Meeting Date: September 18, 2024
Report #:2409-3445
TITLE
Economic Development Activity Report
This report will be a late packet report published on September 12, 2024.
Retail Committee
Staff Report
Report Type: ACTION ITEMS
Lead Department: City Manager
Meeting Date: September 18, 2024
Report #:2409-3446
TITLE
Economic Development Activity Report
RECOMMENDATION
Staff recommends that the Retail Committee receive this Economic Development Activity Report
for the month of September 2024
EXECUTIVE SUMMARY
This September 2024 Economic Development Activity report presents the status of ongoing work
conducted by the City and information on the City’s retail landscape from CoStar. This is the first
such report and it will scale as reporting continues.
As a follow-up to recent Retail Committee discussions, this report provides a more
comprehensive snapshot of Economic Development activities underway throughout the
organization, including priority objectives approved by the City Council under Economic
Development and Transition, large-scale events and activations throughout town, retail
businesses that have recently opened or closed, as well as communication and coordination with
internal and external stakeholders. This report also presents retail leasing information from
CoStar for the City’s University Avenue Downtown and California Avenue commercial cores as
context for the City’s activities. Planned development ‘case studies’ will be populated in future
reports as suitable projects with willing participants are identified; the structure of those case
studies is discussed in this report.
BACKGROUND
The Palo Alto City Council approved Palo Alto’s comprehensive Economic Development Strategy
in August 2023. This strategy contained three guiding principles focused on enhancing the City’s
commercial cores, ensuring access and connections to those commercial cores, and adopting
policies that ease the regulatory burden on businesses. The full strategy is available on the City’s
business website.1 Within the three guiding principles were twelve recommendations for staff to
pursue to enhance the City’s economic vitality.
As part of its 2024 priority setting process, the City Council once again selected Economic
Development and Transition. In March 2024, the City Council approved the workplan for this
priority which consisted of twelve objectives. These objectives were informed by the Economic
Development Strategy and other community needs. These objectives are the focus of the City’s
economic development work for 2024 and the most recent quarterly report on progress towards
accomplishing these objectives is available online2.
To help advance the City’s economic development strategy and objectives, the City Council
created the Retail ad hoc committee, which first convened at the end of 2023. The committee
since became a brown-acted ad hoc, and began convening its meetings in public subject to the
brown act beginning in March 2023. It meets publicly monthly on the 3rd Wednesday of every
month at 9:00 AM providing an important forum for communication among the committee
members, business stakeholders, and City staff.
This activity report is intended to address questions that have come up through discussion at
Retail ad hoc meetings and provide a template for ongoing reporting to the committee. Although
the City transmits quarterly updates for the objectives within the City Council priorities, the Retail
ad hoc has expressed interest in more real-time updates on a broader range of topics.
This report, and subsequent versions, will provide updates on the topics described in the
executive summary as they are available, but it should be noted that not every topic will have a
substantive update each month. As such, items will not necessarily appear each month in this
report. Information from CoStar will be presented four times a year as quarterly information is
updated in that system.
ANALYSIS
This section of the report provides updates on priority objectives under the City Council’s 2024
priority of Economic Development and Transition that have substantive updates, highlights
notable events and activations, and begins to transmit information that will be scaled for future
reports on business openings, closings, and development case studies. This section also details
meetings, communications, and coordination from the City’s central economic development staff
with both internal and external stakeholders.
1 The Economic Development Strategy is available online here:
https://www.cityofpaloalto.org/Business/Comprehensive-Economic-Development-Strategy
2 2024 Council Priorities and Objectives Q2 Report
https://cityofpaloalto.primegov.com/meetings/ItemWithTemplateType?id=5648&meetingTemplateType=2&comp
iledMeetingDocumentId=11540
Updates on Economic Development and Transition Objectives
The Retail Committee has brought up its desire for more frequent and real-time updates on the
twelve objectives within City Council’s 2024 priority of Economic Development and Transition.
As discussed in the background section, the objectives within the City Council’s priority of
Economic Development and Transition represent the workplan for 2024. Advancing these
objectives represents the core function of the City’s central economic development staff.
Additional information for certain objectives that have updates from the Quarter 2 progress
report are included below.
ED&T 1: Facilitate the establishment of sustainable business organization in the Cal Ave,
DT, and Midtown Districts
Staff continues to convene Cal Ave merchants on a monthly basis to discuss issues related to the
future of Cal Ave. and improvements to its current condition. Staff convened the
Downtown/University Ave working group to discuss the University Avenue Streetscape project
on September 10 and will continue meeting with that group and broader downtown
stakeholders. Staff is actively working with the Chamber of Commerce and other partners to
explore the establishment of a midtown merchant group.
ED&T 2. Engage Cal Ave merchants on high priority, rapid implementation projects, i.e.
barrier replacement, street cleaning, maintenance, access, signage and outdoor dining
guidelines
Staff is currently navigating the procurement process for planters and bollards to be installed at
the entrances of California Avenue. Staff is developing a signage plan for the car-free street,
including pedestrian wayfinding and gateway district signage, with Urban Field Studios (UFS).
Staff is also developing Outdoor Patio Guidelines that take California Avenue’s status as a car-
free street into account with UFS.
ED&T 5. Approve preferred alternative for the University Ave Streetscape Plan in
preparation for environmental review and funding options
As discussed above, staff convened the University Avenue/Downtown Stakeholder working
group to continue refinements for the University Avenue streetscape project on September 10.
That meeting was open to the public, advertised through Uplift Local and other city channels,
and was recorded. The recording will be posted to the City’s website for the University Avenue
Streetscape project. Further discussions with the working group will be scheduled soon and will
inform the further refinement of a preferred alternative to present to the City Council later this
year.
ED&T 7. Implement ongoing parklet program in compliance with adopted parklet
standards, leveraging pre-approved designs
Staff from Public Works, Fire, and the City Managers’ Office convene on a weekly basis to advance
this item. Applications are being received for parklets under the ongoing program, including
along the recently repaved section of Emerson. Preapproved designs were released in August, a
user guide has been developed and posted, and staff is working through a Frequently Asked
Questions document. Staff continues to meet with parklet operators to ensure that parklets
operate in a safe and reliable manner. Staff is working to minimize the hardship on parklet
operators by considering retrofits to comply with ongoing standards when appropriate.
ED&T 10. Establish regular engagement with retail brokers in the area to create stronger
connections and understand how the City may be able to help promote available spaces
Staff has partnered with the Good City Company to conduct outreach to some of the most active
brokers in town and solicit feedback on how the City can help them fill vacancies. Meetings have
taken place with different brokerages that have generated useful feedback and input. This
information will be incorporated into a page on the City’s business website that can be used by
brokers to help market locations in Palo Alto. Feedback from the brokers has also been
incorporated into the City’s recommendations about planning and land use, agendized as a
separate item for discussion at the Retail committee on 9/18.
ED&T 11. Research and evaluate options for implementing a public-private small and
local business and incubation and vacant storefront program connecting landlords
experiencing vacancy with small and local-businesses that may be seeking brick and
mortar spaces
Staff visited the ‘moment’ pop-up shops in Downtown San Jose on San Pedro and Post street as
part of a tour organized by the Silicon Valley Economic Development Alliance (SVEDA) and
learned about the process used by the City of San Jose. Economic Development staff will
schedule conversations with counterparts in San Jose, Santa Cruz, and San Francisco to discuss
their respective processes.
ED&T 12. Conduct stakeholder outreach and present recommendations to Council for a
citywide retail zoning strategy and receive direction for zoning ordinance
implementation.
This item is agendized as a separate item for discussion as part of the September 18 Retail
Committee. This objective featured prominently throughout the Economic Development
Strategy approved by the City Council in August 20233, which included a guiding principle to:
“Adopt policies that reflect changing market conditions by easing the regulatory burden for
businesses, removing outdated restrictions that create hurdles to tenancy, and focus retail and
retail-like uses in places where they are market supported.” Through discussion with the Retail
Committee and subsequent action with the City Council, meaningful changes to the City’s land-
use restrictions can improve the City’s economic vibrancy.
Notable Events and Activations
This section of the report is meant to detail large scale events and activations that have either
recently taken place or are anticipated to take place soon. When attendance numbers are
available, they will be shared.
3 The Economic Development Strategy is available online here:
https://www.cityofpaloalto.org/Business/Comprehensive-Economic-Development-Strategy
August 23 and 24, 2024: Festival of the Arts. This event led by the Palo Alto Chamber of
Commerce relaunched after the pandemic in 2023 with support from the City of Palo Alto to get
back up and running. The event continued to scale in 2024, bringing in tens of thousands of
visitors to downtown Palo Alto over two days in August.
Notable Retail Business Openings/Closings
Staff continues to work on enhancing access to sources of information that will allow us to better
track businesses as they begin operating and eventually shut down. For this first activity report,
information on only a couple businesses is being presented as an example of what can be shared
in future reports. As staff continues to identify additional sources of information for real-time
retail openings and closings this section can be scaled in later reports.
Openings:
Starbird Chicken – 2515 El Camino Real #102 – Starbird was started in Sunnyvale in 2016 and has
since expanded to multiple locations throughout the Bay Area and Southern California. This will
be its first location in Palo Alto, opening on Friday, September 13.
Closings:
HanaHaus – 456 University Avenue (within the Varsity Theater) – HanaHaus started in Palo Alto
in 2015 and has operated as a coworking space and café since then. SAP will maintain its other
Palo Alto offices but will be focused on growth opportunities for their core business. HanaHaus
will end its Palo Alto operations on October 1, 2024. Staff is in contact with the property owner’s
representatives to support re-occupancy of the space.
Meetings, Coordination, and Communication
As discussed briefly above, staff has convened a number of meetings with external stakeholders
including:
•August 27 Cal Ave Merchant meeting
•September 10 Downtown/University Avenue Stakeholder Working Group
Upcoming planned meetings include:
•September 25 Cal Ave Merchant Meeting
•The next Downtown University/Avenue Stakeholder working group is being scheduled;
the City will share that date through various communication channels as it becomes
available.
Economic Development staff is also working with Good City Company to resume conversations
with hoteliers in town about potential destination marketing efforts and how they can be scaled.
Economic development staff is also amplifying an information session being hosted by the City
that will discuss new Energy Reach Code requirements on Friday, September 20 at 9:00 AM.
These new requirements are subject to California Energy Commission approval, but would go
into effect Friday, October 4 and impact new construction and substantial remodels. Restaurants
and others with commercial kitchens would benefit from attending the session. Information can
be found online here: https://www.cityofpaloalto.org/Events-Directory/Planning-and-
Development-Services/Energy-Reach-Code-for-Building-Construction-Information-Session
Internally, Economic Development staff continues to coordinate internally among various
stakeholders on topics including:
•El Camino Real Repaving Project
•Middlefield Fire property rehabilitation
•Parklet Implementation
•Cal Ave. Outdoor Retail (Dining)
•Utilities’ Sustainability Initiatives (such as Heat Pump HVAC Rebates)
•Public Works’ Upcoming Sewer Use and Stormwater Ordinance Updates, specifically work
related to Fats, Oil and Grease (FOG)
Economic Development staff has also interacted with internal and external stakeholders in a
customer service capacity, addressing issues ranging from business tax and business registry
inquiries, troubleshooting retail definitions, navigating conditional use permit requirements, and
answering questions about the City’s permitting process.
The week of September 9, staff will be sending out the monthly ‘Business Connect’ newsletter,
which will encourage business stakeholders to participate in the retail committee discussion,
transmit information about Caltrans’ El Camino Real repaving project, provide details on how to
participate in Utilities’ Heat Pump HVAC rebate process and share preliminary information on
our planned Uplift Local holiday promotions.
Costar Information
Through conversations with the Retail Committee, there has been a great deal of interest on the
retail landscape in the City’s commercial cores. Using CoStar, the largest source of real estate
information, the city has been able to generate some high-level information regarding the
current retail conditions in the University Ave. Downtown and California Avenue Business
districts. That information is presented below for preliminary discussion. Information is
presented that looks at highs and lows over the past ten years, but it should be noted that none
of the figures are inflation adjusted. Nonetheless, this does provide information that can be used
for future benchmarking and comparisons.
University Avenue Business District
To generate this data, a map was created in CoStar bounded by Lytton on the North, Forest on
the South, Alma on the West and Cowper on the east. This geographic area represents a
significant portion of the retail core for the Downtown University business district but
intentionally excludes the Stanford Shopping Center. The map is shown here as Figure 1.
Figure 1. Map of University Avenue Business District
The average annual retail rent within the bounded area is $76.84 (~$6.40/mo) as of Q3 2024,
representing a minor decrease from the high of the last ten years ($77.05 (~$6.42/mo) in Q3
2024) but higher than the low of the last ten years ($59.95 (~$5.00/mo) in Q3 2014).
The current retail vacancy rate is 13.67% for Q3 of 204, down marginally from 13.82% a year ago.
Over the last ten years, the highest retail vacancy rate downtown was 16.42% in Q1 of 2024.
Vacancy in Q4 of 2015 was 0.65%, representing the lowest vacancy rate seen in the last ten years.
Approximately 102,000 square feet of retail is available in the University Avenue business district,
a decrease of 20,000 square feet from 122,000 in Q1 of 2024 as the high.
Net absorption is a figure that represents the square footage that has become available (increase
in vacancy or new construction) offset by the square footage that has become occupied (decrease
in vacancy) within the last 12 months. A negative net absorption figure means that more space
has become available over the term than has become occupied. The most recent figure is 744
square feet of net absorption, which compares to lows of negative 53,000 square feet in Q1 of
2024 and highs of 21,000 square feet in Q1 of 2018.
California Avenue Business District
To generate this data, a map was created in CoStar bounded by College Ave on the North, Oregon
Expressway on the South, Park Boulevard on the East, and El Camino Real on the West. The map
of this shown below as figure 2.
Figure 2. Map of California Avenue Business District
The average annual retail rent within the bounded area is $55.33 (~$4.61/mo) as of Q3 2024,
marginally lower than the high of $55.50 (~$4.63/mo) seen in Q4 of 2023. The lowest in the last
ten years was $43.46 (~$3.62/mo) in Q3 of 2014.
The current retail vacancy rate within the bounded area is 8.44%, lower than the 14.74% high in
in Q4 of 2021 but higher than the near complete occupancy in Q4 of 2016.
Approximately 26,000 square feet of retail is available within the bounded area, a decrease from
2021 Q4’s high of approximately 45,000 square feet. In 2014 and 2015, there were periods where
there was very little retail space vacant within the bounded area.
The net absorption figure for the past 12 months for the bounded region is approximately 3,000
square feet. This is higher than lows of negative 17,500 square feet in Q4 of 2017 and highs of
18,500 square feet in Q4 of 2021.
Case Studies
Staff is currently working to identify candidate projects to participate in a ‘case study’ pilot, which
would be reported out to the Retail Committee on a monthly basis. The purpose of the pilot is to
track projects from submission through completion and identify troubleshooting that helps the
project move along. This troubleshooting would also inform potential changes to city process to
expedite similar projects in the future. This would help applicants through both the entitlement
(planning) process for things like CUPs as well as the permitting process through the City’s
Development Services function.
The case study would report out:
•Name of Business and Type of Business
•Address of Project and Business District if applicable
•Type of Development, Permit, or project
•Current Status
•Issues Identified and being resolved
•Next Steps
•Lessons Learned to incorporate into similar projects
This format requires volunteers who are willing to share their project information in a public
setting. As staff identifies projects with willing participants, we will begin to share the information
on a monthly cadence.
FISCAL/RESOURCE IMPACT
No additional funding is needed at this time for the actions described in this report. The city’s
central Economic Development function is staffed by two positions, 1.00 Assistant to the City
Manager (Economic Development Coordinator) and 1.00 Administrative Assistant (Economic
Development Specialist). These two positions work in cooperation and collaboration with other
stakeholders throughout the City organization to accomplish the work within the Economic
Development and Transition priority and other work to further the City’s Economic Development
goals. A thorough conversation on desired investment in economic development activities was
held in the fall of 2021 and these resources reflect the Council direction.
Additional limited term project staffing for the City’s work on parklets, the University Avenue
Streetscape project, and Car-Free streets currently augment core staff, providing focused
expertise to these projects through FY 2025. Additional costs for project-specific investments will
be refined and discussed with City Council when appropriate as project elements continue to
take shape. The City’s Economic Development and Transition efforts may result in changes to
revenues, which will be incorporated into future projections and budgets as appropriate.
STAKEHOLDER ENGAGEMENT
Stakeholder engagement is a critical component of the City’s economic development function
and is discussed throughout the above report. Economic Development staff meets frequently
with business stakeholders on the topics in this report and will continue to do so through
individual conversations, meetings with business districts, regular communication with the
Chamber of Commerce and through various other communication channels.
ENVIRONMENTAL REVIEW
Receipt and acceptance of this report is not a project under CEQA.
ATTACHMENTS
None
APPROVED BY:
Ed Shikada
September 18, 2024 www.cityofpaloalto.org/business
Steve Guagliardo,
Assistant to the City Manager
Economic Development Activity Report – September 2024
Retail Committee
Comprehensive Economic Development Strategy
(Approved August 2023)
2
•Strategy included: 3 Guiding Principles → 10 Recommendations → 28 actions
•Priority actions in the approved Economic Development Strategy included in the City Council
2024 Economic Development & Transition objectives
3
Updates on 2024 Economic Development & Transition
Objectives
5 Focus on Commercial Corridors, Downtown and California Ave
6 N Facilitate the establishment of sustainable business organization in the Cal Ave, DT, and Midtown districts
7 N Engage Cal Ave merchants on high priority, rapid implementation projects, i.e. barrier replacement, street cleaning, maintenance, access, signage and outdoor dining guidelines
8 R Develop permanent Cal Ave car-free steetscape design through engagement with Cal Ave merchants and community stakeholders (h)
9 N Initiate preliminary analysis and stakeholder engagement on a car-free streetscape design for Ramona Street
10 R Approve prefrerred alternative for the University Ave Streetscape Plan in preparation for environmental review and funding options (i)
11 N Develop pre-approved parklet designs with stakeholder outreach, for Council approval
12 R Implement ongoing parklet program in compliance with adopted parklet standards, leveraging pre-approved designs (e)
13 N Advance Downtown Parking garage in conjunction with advancement of affordable housing in the Downtown
14 N Advance complete build out of fiber pilot phase 1 with grid modernization
15 Support Economic Development and Business Transition
16 N Establish regular engagement with retail brokers in the area to create stronger connections and understand how the City may be able to help promote available spaces
17 N Research and evaluate options for implementing a public-private small and local business and incubation and vacant storefront program connecting landlords experiencing vacancy with
small and local-businesses that may be seeking brick and mortar spaces
18 R Conduct business stakeholder outreach and present to Council recommendations for a citywide retail zoning strategy and receive direction for zoning ordinance implementation (k)
R- Returning Objective N-New Objective
4
Notable Events and Activations, Openings and Departures
Events & Activations
•Palo Alto Festival of the Arts - led by the PA Chamber of Commerce
•August 23 and 24, 10 AM – 6 PM, over 20,000 visitors
•Relaunched in 2023 with support from the City of Palo Alto
Openings
•Starbird Chicken (California Avenue Business District on El Camino Real)
Departures
•HanaHaus (Downtown University Avenue – Varsity Theater)
5
Economic Development Coordination & Facilitation
Active internal and external initiatives underway:
•El Camino Real Repaving Project
•Middlefield Fire Property Rehabilitation
•Parklet Implementation
•Cal Ave. Outdoor Retail (Dining)
•Utilities’ Sustainability Initiatives (such as Heat Pump HVAC Rebates)
•Public Works’ Upcoming Sewer Use and Stormwater Ordinance Updates, specifically work related
to Fats, Oil and Grease (FOG)
•Partnering with Good City Company to work with Hoteliers
•Energy Reach Code Workshop – Friday, September 20 at 9 AM
6
Retail Property Metrics – Downtown University Avenue
•Average annual retail rent (NNN) $76.84/sf (or ~$6.40/mo) through current Q3 of 2024
•High of last ten years was $77.05/sf or ~$6.42/mo in Q4 of 2023
•Low of last ten years was $59.95 or ~5.00/mo in Q3 of 2014
•Current retail vacancy rate is 13.67% through current Q3 of 2024
•Down from 13.82% a year ago
•Highest within last ten years was 16.42% in Q1 of 2024
•Lowest was 0.65% in Q4 of 2015
•Approximately 102,000 sf of retail available through current Q3 of 2024
•Decrease of 20,000 from Q1 of 2024 where 122,000 was available
•744 SF of Net absorption over past 12 months
•Low of negative 53,000 SF in Q1 of 2024
•High of 21,000 SF in Q1 of 2018
All data provided by CoStar
7
Retail Property Metrics – California Avenue Business District
•Average annual retail rent (NNN) within the bounded area is $55.33/sf (or ~$4.61/mo) as of Q3 2024
•Lower than the high of $55.50/sf or ~$4.63/mo in Q4 of 2023
•Low of last ten years was $43.46 or ~$3.62/mo in Q3 of 2014
•Current retail vacancy rate is 8.44% through Q3 of 2024
•Down from 14.74%in Q4 of 2021
•Higher than the near complete occupancy in Q4 of 2016
•Approximately 26,000 sf of retail available through Q3 of 2024
•Decrease from 2021 Q4’s high of approximately 45,000 square feet
•Minimal retail space vacancy in the bounded area during 2014-2015
•3,000 SF of Net absorption over past 12 months
•Higher than lows of negative 17,500 SF in Q4 of 2017
•High of 18,500 SF in Q4 of 2021
All data provided by CoStar