Greater Greater Washington

Is "the rent too damn high" for some DC businesses?

In the coming weeks and months, a handful of businesses along 14th Street NW will close their doors. The retail corridor appears to be booming, but high commercial rents make it difficult for low margin businesses to compete.


Photo by ElvertBarnes on Flickr.

This Saturday, Mid City Caffe on 14th Street will serve its last latte. Citing insufficient sales and a less-than-ideal second floor location above Miss Pixie's, the coffee shop opted not to pursue a lease extension; instead, they will simply close for good.

Perhaps more noteworthy than the closing of the shop itself is the fact that the Mid City brand will not live on. Ownership is not seeking new retail space.

Jeffrey Lamoureux, the shop's general manager, says that decision is driven by the challenging business climate along the 14th Street corridor: "If we were to relocate and hope to capitalize on the customer base and brand identity we've developed since 2009 we would have to find some place within a few blocks, where an affordable rent would be extremely hard to come by."

Earlier in the month word spread that Miss Pixies is in the market for new retail space. It's reported that the building's landlord wants to quadruple the rent for the storefront at 1626 14th Street NW. Jeffrey Lamoureux says that's a problem for businesses like his, where "high commercial rents make places like Mid City, low-volume neighborhood-centric spaces, untenable."

Mid City did have a loyal customer base. The shop was often busy, popular among coffee lovers, and on the surface, appeared to be successful. That's not to say there wasn't enough demand for Mid City Caffe, or that the shop wouldn't be filled with customers if it re-opened nearby, but it does suggest there isn't enough demand to justify the cost of running such a business on 14th Street.

High rents directly impact businesses by raising the average total cost. Barista wages and coffee prices likely don't waver much from city to city, but the amount a coffee shop pays to its landlord every month can and does vary greatly.

The result is that coffee shops in high-rent neighborhoods, for example, face a challenge that coffee shops in low-rent cities and neighborhoods don't: They have to pay handsomely for the privilege of simply being able to open their doors.

In order to make it work, businesses either need to sell high-margin goods and services, or do brisk volume on low-margin items. Coffee is the kind of business where strong volume is key.

That's the strategy at Peregrine Espresso. The successful Capitol Hill coffee brand opened its second location earlier this summer, exactly one block north of Mid City Caffe. Even so, there are notable differences between the Peregrine and Mid City.

Peregrine owner Ryan Jensen says that his shop caters to a different type of customer. "When we found our space up there, we realized that we really didn't have the space to accommodate a sea of telecommuters," he says, "so we thought it best to keep the chairs turning over so that the space doesn't get too stagnant."

With less than 600 square feet of space and enough seats for only about a dozen customers, Peregrine is banking on strong take-out business. They don't have wi-fi and aren't trying to lure customers looking for a place to hunker down for hours.

Jensen acknowledges that high rents make doing business on 14th Street a challenge. "If you only want to serve coffee (not lunch, dinner, or alcohol) and aren't necessarily interested in being a music venue, it becomes very difficult to sell enough cups of coffee to cover high rent," he says, "particularly in a neighborhood that doesn't have the same type of daily pedestrian traffic that you might find closer to downtown or in Penn Quarter.

Peregrine chose its micro-sized storefront in part because, even though the rent is high on a per-square foot basis, the monthly payments aren't astronomical. They also benefited by securing a long-term lease in July 2010, before some of the new developments nearby had broken ground. While small annual rent increases are expected, Peregrine is at less risk of the price shock that Mid City and Miss Pixies are currently experiencing.

High rents impact more than just individual businesses. Topher Matthews recently questioned the future of DC's "third places". In neighborhoods with high rents, the primary concern of any business is covering its costs. No matter what role it plays in the community, if it can't pay its bills, it won't be around for long.

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Rob Pitingolo moved to the DC area in mid-2010 and currently resides on Capitol Hill. He also writes about issues of urbanism, economics, transportation and politics at his blog, Extraordinary Observations

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The rent is too damn high in this region period, commercial or residential.

by Redline SOS on Sep 30, 2011 10:28 am • linkreport

How can any article that leads with a question of whether the rent is too damn high not even mention and provide benchmarks for the going rent as part of the typical triple-net lease?
C'mon... Throw out some $/SF figures from around town!

by mark on Sep 30, 2011 10:36 am • linkreport

GGW really should not become a place to complain about every store (that its editors like) closing. If there is a city wide trend, it's fine, but this is the Capital of the US. Rents are high. Some businesses don't make it. That's capitalism. Too bad for the owner. Happy to hear he's going out without too much loss. Moving on to real news...

by Jasper on Sep 30, 2011 10:43 am • linkreport

There are two questions here:

1. Can the high rents be passed along to customers? While DC is doing ok, it isn't as high income as it likes to pretend. Fairfax/Montgomery county are rich because of two income GS14 families, not because they work in Wall Street. DC is even more the case. DO we see any sign of income increase in DC?

2. Is there a tipping point in gentrification where coffee shops, bookstores, and what not have to become extinct. Much like the barber shops/fish frys they replaced. Georgetown is a good example of that; any interesting business gets driven out quickly.

by charlie on Sep 30, 2011 10:46 am • linkreport

@Jasper

I think plenty of people lament the loss of a locally-owned business and its replacement with Starbucks or Restoration Hardware.

by MLD on Sep 30, 2011 11:21 am • linkreport

There's another dynamic at work here. The trend is for DC corridors to become nightlife centers, and crowd out other, lower-income businesses. While it's fine to proclaim that "that's just capitalism" the fact is that most of these businesses do not cater to neighborhood residents. I have friends who live in Logan who complain that with all the influx of new restaurants, they can never get a table without waiting for 30+ minutes!

So supply and demand is out of whack. There is enough demand from the metro region to fill all of 14th street with nightspots and nothing else. How do we ensure that some retail space is left to satisfy neighborhood needs? Honestly the simplest way is to limit the number of liquor licenses given out. But I know that's a very unpopular idea on local blogs.

by Jeff on Sep 30, 2011 11:25 am • linkreport

Why can't a place like Mid City re-locate to 7th ST where I'm sure the rents are much cheaper? It's only a 10 min walk from 14th.

High rents aren't necessarily a bad thing if businesses take cues from what the market is telling them and locate in up-and-coming places like Shaw, H ST, or Petworth. In fact, high rents in existing trendy places is probably the main factor in the development of up-and-coming places. I say spread the amenities to underserved neighborhoods, especially if it makes business sense.

Disclosure: I'm a Shaw property owner

by Falls Church on Sep 30, 2011 11:36 am • linkreport

The prices at Miss Pixies are too damned high. If she moves somewhere with lower rent, I imagine prices wont change a bit.

by Anon on Sep 30, 2011 11:46 am • linkreport

How do we ensure that some retail space is left to satisfy neighborhood needs? Honestly the simplest way is to limit the number of liquor licenses given out.

I disagree. Well...perhaps the "simplest" way is to limit liquor licenses but simple and best aren't the same. The best way is to increase the amount of space available.

Also, won't liquor license freezes in one area push demand to nearby areas (although not necessarily on a one-for-one basis)? If this is true, Adams Morgan's moratorium is pushing businesses to 14th street, who may adopt their own moratorium, and so on.

by WRD on Sep 30, 2011 12:03 pm • linkreport

Lamoureux seems to be changing his story. Actually, if he did move to 7th street (or 9th St for that matter), he could be a transformative business for the area. Mid-City is actually rather expensive--esp. the baked goods. It's not like we're mourning the loss of a great carryout or reasonably priced casual restaurant, amenities that the area could use.

by Rich on Sep 30, 2011 12:03 pm • linkreport

Actually, the booze establishments are crowding out other stores because they're cashed base businesses that underpay their taxes. It's not a level playing field.

by ahk on Sep 30, 2011 12:20 pm • linkreport

Hm. A few things jump to mind here:

1) I don't see the trend for 14th St to turn into an nightlife destination at all. If anything, the corridor is moving in the opposite direction, housing an increasing number of residents and small startup (non-retail) businesses.

2) How much money can the rent possibly be at Mid City? That location sucks for retail, and if the landlord thinks that he can find another retail tenant for that location, I think he's delusional.

3) Could this just be a case of bad management? I think I speak for many when I say that this announcement came as a complete surprise. Why didn't the owners try tweaking their prices and business model to increase turnover?

The abrupt closure of Pound in NoMA immediately springs to mind, where the apparently-modestly-successful shop closed its doors the day that they opened a "second" location on Capitol Hill, citing nothing more specific than "landlord issues." Le sigh.

by andrew on Sep 30, 2011 12:23 pm • linkreport

@Falls Church

I totally agree. A smart business owner being pushed out of 14th street due to high rents would logically move to 7th St. You could retain some of your customer base, but also plant yourself firmly in one of the next corridors to explode--becoming that "transformative" business. You could probably even buy your storefront and never have to worry about rent again.

With all the development starting up on 7th St, it WILL be the next 14th St in a few years, with the added benefit of having a metro line running directly below it.

by petrograd on Sep 30, 2011 12:24 pm • linkreport

Wow, look at all the expert entrepreneurs and business executives here!

If the guy says moving somewhere else isn't feasible, I'm inclined to believe him. Maybe this particular story doesn't illustrate the trend the article is trying to get at, but if you can run a business better than this guy, do it.

by WRD on Sep 30, 2011 12:28 pm • linkreport

I think the post points out the differing strategies of two business owners, located nearby, and probably says a lot about why one survives and the other doesn't.

by spookiness on Sep 30, 2011 12:32 pm • linkreport

@Jeff 'I have friends who live in Logan who complain that with all the influx of new restaurants, they can never get a table without waiting for 30+ minutes!

That's why we have what are supposed to be neighborhood shopping districts such as 17th Street between P and R. Accept, unfortunately, whenever the neighborhood tries to enforce the rules that keep them 'neighborhood serving' and everyone cries foul ... and you end up with businesses and restaurants more focused toward bringing in people from outside the neighborhood (and even outside the city) ... and what is supposed to be neighborhood focused businesses get pushed out. Sad. Especially since I've seen it occur even on here ... by the same folks who later lament the fact that they unknowingly helped bring in the high-volume, lucrative, liquor-centered, establishments which end up pushing out businesses that actually helped make the neighborhood a 'complete neighborhood'. Sad.

by Lance on Sep 30, 2011 12:41 pm • linkreport

The prices at Miss Pixies are too damned high. Supply and demand! Want to open a competitor? Maybe over on 7th Street?

by Arl Anon on Sep 30, 2011 12:49 pm • linkreport

@Andrew, '3) Could this just be a case of bad management? I think I speak for many when I say that this announcement came as a complete surprise. Why didn't the owners try tweaking their prices and business model to increase turnover?'

I remember reading that something like 95% of all new businesses don't make it past the 5 yr mark. This establishment has been here since only 2009? ... and they're blaming the increasing rents?! Come on, any one of us could have told them 5 years ago that with all the building planned for 14th Street that rents were sure to go up. Why wasn't a lease locked in for a longer period ... like the new coffee shop down the road has done? Often times property owners give cut rate leases to businesses to fill a space that will only be available for a short while. Look around that location, the owner of the property would have to be seriously unworthy of his money of he wasn't already looking to market that non-historic structure to developers looking for land to build on on 14th Street. The tenants had to know 'if it seems to good to be true, it probably is.' I'll wager we see new construction on that site within the next few years.

by Lance on Sep 30, 2011 12:51 pm • linkreport

@ahk--Why would a bar be any more cash-based than a coffee shop? I can think of a few bars that are cash-only (Little Miss Whiskey's, the Raven), but the vast majority take cards just like any other business.

by Dan Miller on Sep 30, 2011 12:56 pm • linkreport

@petrograd 'With all the development starting up on 7th St, it WILL be the next 14th St in a few years, with the added benefit of having a metro line running directly below it.

Well ... let's hope it's actually the next future 14th Street.

Unfortunately, despite the great strides that street has made in the last decade, it's still pretty much near the beginning of any 'improvement' phase. Compare it to it's sister street Connecticut Avenue a few blocks to its west ... and I think you'll get what I mean. It's started it's long climb up, but it's not there yet by any means. And who knows, 7th Street, with its closer proximity to downtown, could get 'there' before 14th Street does.

by Lance on Sep 30, 2011 12:57 pm • linkreport

DO we see any sign of income increase in DC?

Yes, according to the latest census stats, median income increased $8K over the past decade.

Is there a tipping point in gentrification where coffee shops, bookstores, and what not have to become extinct. Much like the barber shops/fish frys they replaced. Georgetown is a good example of that; any interesting business gets driven out quickly.

I don't think so. See Greenwich Village or the Castro which are very gentrified yet retain their quirky appeal. I think georgetown is devoid of funky weirdness largely because georgetowners are more J Crew than Commander Salamander.

by Falls Church on Sep 30, 2011 1:09 pm • linkreport

If the guy says moving somewhere else isn't feasible, I'm inclined to believe him.

That part I believe. The part I question is whether the "rent is too high" (translation: the free market is the problem) or if the business is poorly conceived/run (i.e., bad management is the problem). Given the potential viability of moving to 7th/9th ST, I'm inclined to believe that market based rent prices are not the problem and maybe Mid City's departure is part of the healthy process of creative destruction.

by Falls Church on Sep 30, 2011 1:21 pm • linkreport

@Falls Church:

"I don't think so. See Greenwich Village or the Castro which are very gentrified yet retain their quirky appeal."

Yours is the point I wanted to make---there are plenty of other high-rent neighborhoods in other cities that DO support coffee shops with lots of seating and WiFi. Park Slope, Brooklyn has one on every corner.

Sure, coffee there is $4.50 instead of $3.50, but they manage to stay in business. Makes me think that high rent isn't the only story here. Any business owners or other retail experts care to comment?

by xmal on Sep 30, 2011 1:21 pm • linkreport

Mid-City's location sucks, so I don't find it surprising that they are closing. It's too bad, because I really like their coffee and vibe.

Anytime the customer has to go up (or down) a flight of steps to get to a business like this, the proprietor is flirting with this sort of outcome, for all sorts of reasons, but mainly poor visability and the inherent laziness of most people.

by Juanita de Talmas on Sep 30, 2011 2:07 pm • linkreport

. See Greenwich Village or the Castro which are very gentrified yet retain their quirky appeal.

I have a feeling that a lot of these businesses remain because the business owners also own the buildings themselves.

And as far as Georgetown, patrons of Georgetown shops want upscale clothing and mediocre restaurants. The market is at work, there.

by JustMe on Sep 30, 2011 2:12 pm • linkreport

Anytime the customer has to go up (or down) a flight of steps to get to a business like this, the proprietor is flirting with this sort of outcome, for all sorts of reasons, but mainly poor visability and the inherent laziness of most people.

That's certainly true and also likely led to the demise of Amma's Indian in Gtown which had a much better value proposition than Mid City.

by Falls Church on Sep 30, 2011 2:32 pm • linkreport

I've been to Mid City...once. It was dirty, noisy and service was horrible. The coffee was bland and the coffee cup it was served in was dirty.

Honestly, I fear Mid City may have closed cause well--it just wasn't run very well nor was it very appealing. Other coffee shops, like Peregrine and ACKD on 14th are much more appealing and in my opinion, cleaner, and more comfortable with better service.

It's called..COMPETITION. :) There are too many other options, why go somewhere if it's bad?

by LuvDusty on Sep 30, 2011 2:42 pm • linkreport

the market wants what it wants and that changes overtime. The new Washington Circle mixed-use development is a perfect example of an under-served market. The place is booming with plenty of people spending plenty of money. Great for the city and great for the neighborhood.

by cmc on Sep 30, 2011 3:06 pm • linkreport

I disagree. Well...perhaps the "simplest" way is to limit liquor licenses but simple and best aren't the same. The best way is to increase the amount of space available.

WRD: I don't agree that increasing the supply of space will lower rents and increase the retail diversity. There is (effectively) an infinite demand for bars and restaurants in the area because the potential clientele consists of the entire metropolitan area, plus tourists. IMHO, if you double the available space, you will just end up with double the number of lounges.

by Jeff on Sep 30, 2011 3:09 pm • linkreport

@Jeff

Part of what's needed are more neighborhood bars so that you don't have such high demand for one single nightlife district.

Also, I don't see how doubling the space is a bad thing if you still fill that space. What's the problem with that?

by Alex B. on Sep 30, 2011 3:19 pm • linkreport

More space, more retail on the 2nd floor? Americans do not walk up stairs to go to retail! Pshaw on that idea.

There is only one single nightlife scene in DC?
Dupont, 17th Street, Adams Morgan, Georgetown, Downtown (the M St/lower Dupont area), Capitol Hill. That's 6 older established scenes, plus the newer/more congested ones in Chinablock, Logan/MidCity/U Street, H St NE, Barracks Row.... That seems alot of nightlife spots, don't it?

Increasing supply has not lowered rents or increased diversity. It is not cheaper to live in Georgetown because NE has blown up. There is not more retail in Adams Morgan now that there are more places to eat and drink on U St. Building bigger hasn't lowered anything.

by greent on Sep 30, 2011 3:32 pm • linkreport

This is not just about Mid City cafe and Miss Pixie's. Today, 1409 Playbill will close (possibly to relocate later). Pulp, Ruff n Ready, El Paraiso, Go Mama Go, and some other places whose name I can not remember have closed this year or will close soon (and I have heard rumors about ACKC). Clearly, something larger is going on.

by Watcher on Sep 30, 2011 4:50 pm • linkreport

Watcher has a good point about the large number of business in those blocks closing indicating something bigger than just business failures.

Having once been in Mid-City, i was underwhelmed. Overpriced, mediocre coffee. I agree that management had as much to do with it as anything.

by dcseain on Sep 30, 2011 5:28 pm • linkreport

@greent

A couple of points:

Increasing supply has not lowered rents or increased diversity. It is not cheaper to live in Georgetown because NE has blown up. There is not more retail in Adams Morgan now that there are more places to eat and drink on U St. Building bigger hasn't lowered anything.

This isn't asking the right question. Just because we're building more doesn't mean we've met that pent-up demand. Building more doesn't mean we've built enough. Likewise, the relevant question would be to ask what rents would be like if we had built nothing at all - and I'd argue they'd be even higher.

That said, the individual dynamics of all of these places is quite complex. It's true that adding some basic amenity and perception of safety is a tremendous value in and of itself. We need to realize that what DC used to be shouldn't really be the baseline, that state of disrepair was below the baseline.

Still, the addition of more space and density is a long-term play.

One more note - retail in general is a volatile business, independent retail especially. Let's be careful not to read too much into a few anecdotes.

by Alex B. on Sep 30, 2011 7:05 pm • linkreport

There is (effectively) an infinite demand for bars and restaurants in the area because the potential clientele consists of the entire metropolitan area, plus tourists. IMHO, if you double the available space, you will just end up with double the number of lounges.

That is actually great news for the DC economy-- it means that there is no upper bound to the number of jobs that will be available in the city for the unemployed and no upper limit on the amount of tax revenue that can be generated via sales and business taxes. We can just keep building more and more restaurant and retail space, which will keep being filled with restaurants and lounges. You've solved all our fiscal problems in the District!

by Tyro on Sep 30, 2011 8:15 pm • linkreport

Nearly all commercial leases include a property tax increase pass-through.

To what extent have increased property taxes made retail rents unaffordable?

And I agree with mark that this posting should have had some $/SF prices in it. Otherwise, it is like discussing astronomy without the stars.

by Mike S. on Sep 30, 2011 9:07 pm • linkreport

I always find these types of entries in GGW frustrating because for the most part you ignore my voluminous writings on the subject, which provide usable info. One issue is the way the property tax assessment methodology works--downtown office property in part shapes the tax value of all commercial property in commercial districts elsewhere in the city.

As a result, this shifts rents upward, beyond economic numbers. For a sense on how this works, see these entries on Cleveland Park:

http://urbanplacesandspaces.blogspot.com/2009/09/cleveland-park-retail-my-off-hand.html

http://urbanplacesandspaces.blogspot.com/2009/09/commercial-retail-rents-2.html

http://urbanplacesandspaces.blogspot.com/2010/02/once-again-when-you-ask-wrong-question.html

In short, unless your sales are really really high, small retailers in the kind of non-chain appropriate footprints and buildings that typify neighborhood commercial districts in DC are looking for rents under $25/s.f.

http://urbanplacesandspaces.blogspot.com/2007/02/retail-numbers-they-dont-want-you-to.html

by Richard Layman on Oct 1, 2011 12:50 pm • linkreport

If better local higher-rent-paying businesses move in that's fine but that's not usually the case. The high-rent-payers are the national chains.

The block of 14th from Cafe St.Ex to the beer garden (Standard) is really fine. But it will be the next block face to go Crystal City and losing those businesses will be a major loss.

by Tom Coumaris on Oct 2, 2011 11:10 am • linkreport

Specifically on coffee/tea, my favorite such places combine a few different zones, which could be a good way of balancing different rental rates with the different ways in which people use such businesses. A small ground-floor presence could serve the high-margin take-out crowd, while a larger, lower-rent space upstairs (or downstairs) allows people to linger -- preferably with both a social zone and a quiet zone. Teaism's two locations both do this, and both are in higher-rent areas than 14th St.

Not many retail areas can support anything past the ground floor, and it remains to be seen whether 14th is one of them.

by Payton on Oct 3, 2011 2:38 pm • linkreport

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