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How Can Zoning Reform Improve Dealmaking?

  • Insights
By Larisa Ortiz,
Managing Director of Public Non-Profit Solutions

The world has changed and so too have the ways in which people spend their time and money. As businesses evolve to meet changing consumer preferences, too often, outdated zoning codes create unnecessary obstacles for retail businesses looking to make necessary pivots as a matter of survival.


Too frequently, zoning is an unrecognized barrier to entry for businesses in many markets. While public leaders often readily acknowledge the need to curtail and manage discretionary approval processes, they often find themselves in a bind. Residents (who also vote these same public officials into office) like to serve as — and sometimes have come to expect to serve as — the final arbiters of what businesses belong in their communities and what don’t. A deep dive into any zoning code often tells a story about community battles “won” to preserve quality of life, or support certain uses considered “at risk” of encroachment from other, less desirable uses. Consider the city-wide restriction on retail to office conversions in Palo Alto, California (passed when tech companies were growing rapidly and replacing retail spaces), or the limits on tattoo parlors in downtown Norfolk, VA (a hint at the city’s past as a popular port city), or the limits on dancing and nightlife in New Rochelle, NY (aimed at curbing a spate of nightclub crime and disorder), or New York City, where until recently, limits on “Physical Cultural Establishments,” a definition which includes everyday gyms and yoga studios, helped clean up Times Square of massage parlors, but twenty years later made every Equinox gym in the City jump through hoops to open new locations.


Additionally, challenges arise from today’s often narrow definition of what uses belong or don’t on the ground floor of mixed-use urban environments, this despite industry recognition of the increasingly inclusive approach to tenanting former retail spaces to now include experiential, entertainment, educational, and even light manufacturing uses — especially when that manufacturing is an accessory use to a retail outlet (think breweries!).  Manufacturing uses once considered noxious, dangerous, or loud, were rightly separated from residential neighborhoods in the past, but today, small scale and artisanal manufacturing now co-exist quite well — and safely — within mixed-use communities.


Failure to update our zoning codes makes dealmaking harder, as retailers choose locations with an easier path to business opening. These hurdles can be particularly significant for small businesses, who make up 98.8% of all retail businesses according to the U.S. SBA 2022 Small Business Profile. Pre-COVID and post-COVID, small local businesses start off with less capital than their national counterparts. JP Morgan Chase found that the median small business pre-COVID held only 27 days cash buffer in reserve. Retail businesses held less — 19 days. They also often lack the expertise to navigate challenging bureaucracies, resources to hire expeditors, or deep pockets to pay rent while waiting for permits and approvals. Eliminating these hurdles and helping businesses open their doors more quickly greatly helps entrepreneurs preserve their liquidity and better weather financial shock and irregular cash flows, which in turn saves more businesses from failing.


Increasingly, cities across the country are now revisiting their zoning codes to ensure that they don’t become unnecessary impediments to ground floor occupancy. In San Francisco, changes to the zoning code (part of several zoning-related recommendations made by our team for the Union Square Alliance Strategic Plan, completed with MIG) were embraced by elected officials and passed in record time. In New York the City, the Planning Department recently certified the start of the formal public review for a set of long-awaited zoning reforms entitled “City of Yes” — which will eliminate outdated use restrictions from many of the City’s commercial corridors. We applaud and support these efforts and look forward to seeing more cities do the same.



The Streetsense place consulting team leverages strategic and creative advisory services to solve complex real estate issues that enhance the value of places—whether they are new mixed-use developments, assets facing challenges, vibrant districts, or captivating destinations.


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