High retail rental costs in Portsmouth have officials and business owners concerned
by Leslie Modica
Portsmouth has been called “perfect” by the Chicago Tribune. It has been featured in the New York Times travel section, called one of “America’s prettiest towns” by ForbesTraveler.com, and named one of the top 25 arts destinations by American Style Magazine.
You can’t buy that kind of publicity and the boon of tourism it has brought to the city’s shops and restaurants. But it does come at a price — usually between $25 and $90 per square foot. That’s the typical rental cost for retail space in downtown Portsmouth, and it’s a price that has city officials and business owners concerned about downtown’s future. At those rates, a 2,500-square-foot space would cost somewhere between $62,500 and $225,000 a year.
“There are people who say they pay less on Newbury Street (in Boston) than in downtown Portsmouth,” said Bill Mouflouze, a commercial broker who works with several downtown building owners to rent commercial spaces.
Downtown commercial rental rates vary based on several factors, including location, size, parking, and the condition of the building. A space renting for $25 per square foot might be larger and on a side street, while $90 per square foot gets you a smaller space in a high-traffic, high-visibility area.
“It’s been a steady shift (in retail rates),” Mouflouze said. “I’ve been doing this for 32 years. There was a time when $35 or $40 was the highest per-square-foot rent in the city, maybe even less. At one point, on the end of Congress Street by Jumpin’ Jays, there was a time I had four vacancies up there. Now, the vacancy rate there is almost nonexistent.”
Those high rents can mean that local retailers will have a difficult time leasing space downtown — and that national chains could have more opportunities to move in. It’s a trend city officials and the Chamber of Commerce are watching closely.
Conceding that it is an “unfair parallel at best,” Greater Portsmouth Chamber of Commerce executive director Doug Bates made a loose comparison between Portsmouth and Greenwich, Conn., which has seen its downtown transform from a collection of local businesses to super high-end stores, including a Saks Fifth Avenue, as rents have continued to increase in that city.
“Small retailers can make a difference,” Bates said. “If they can’t afford to be here, we will be pushed toward only high-end shops.”
Nancy Carmer, the city’s economic development program manager, agreed that residents and city officials don’t want to see Portsmouth’s downtown overrun with national chains and franchises. But she does not believe that is the future of the city; most retail spaces in Portsmouth tend to be small, which is not desirable for national chains.
“Many of the national retail and food franchises are starting to take Portsmouth seriously now. But … a lot of people would rather see it sit vacant.”
— Bill Mouflouze, commercial broker
However, for small local retailers, renting space downtown can be challenging. When J.L. Coombs closed its Market Street shoe store last year (the company closed its Maine locations and went out of business in December), Angela Drew, the owner of Wear House, a consignment shop on Congress Street, briefly considered moving into the space. She called it the “primetime” of retail locations, but eventually decided against the move in favor of maintaining her smaller, more affordable space.
“I feel like I would be worried about my rent every month, and sometimes I would be just making it,” Drew said. “It’s hard for me not to think bigger is better, but to more than double my rent is not a move I thought would be smart.”
However, she said she has never considered locating her store outside of Portsmouth, or even outside of downtown, despite high rents.
“Dover and Kittery are way less pricey, but to me, the foot traffic, especially from tourists, makes the business profitable. You’re not just getting by,” Drew said.
Mouflouze said there is an effort to maintain independent retailers within the downtown core.
“Whenever I have a space for lease, the first group of tenants I always go to are local, interesting businesses,” Mouflouze said. “There is a lot of interest from franchises. Many of the national retail and food franchises are starting to take Portsmouth seriously now. But luckily, there are a lot of property owners that think like I do. A lot of people would rather see it sit vacant.”
He added that he’s close to finalizing a rental agreement with a local retailer to take over the former J.L. Coombs space, though he was not able to give more information because the deal is not final.
Maintaining balance
Despite the appeal of a busy downtown and tourists with money to spend, Bates said businesses need to be careful not to assume profits are inevitable, especially with the high overhead costs.
“The margins are tighter and tighter,” Bates said.
As those margins grow tighter, Bates said the balance can skew toward restaurants over retail because they can often generate more profit in a day — a “high-risk, high-reward” operation.
Even still, he said, most of the restaurants downtown tend toward a higher price point, driven by the need to make profits in an expensive area.
“There’s no place for a little burger joint,” Bates said. “It’s going to be a $15 burger. And we’re there.”
Also, maintaining a healthy mix of businesses is important, he said.
“There is some sort of balance there that you need to have,” Bates said. “People can’t just come to eat and leave.”
“There’s no place for a little burger joint. It’s going to be a $15 burger. And we’re there.” — Doug Bates, Greater Portsmouth Chamber of Commerce
These types of issues put the city in a difficult position. While officials and residents may agree that sky-high rents pose a potential problem for local businesses, options are limited outside of stepping in to control rents.
“(That’s) something the city has not looked into and probably will not,” Carmer said.
If businesses are worried that rents will continue to rise, the best thing they can do is to own their space, Carmer said. That’s not necessarily an easy prospect, considering the high cost of property in the city, especially downtown. At one point, in the 1990s, the city had a program to help local businesses secure loans to purchase property with a lower interest rate, but that program dissolved as banks were deregulated, Carmer said.
Now, the city tries to help local businesses by pointing them to similar programs and helping alleviate other issues that may put pressure on retailers and restaurants that want to locate here, such as parking requirements, according to Carmer.
Of course, there are some intangible benefits that retailers can’t buy — like being located in the city that has become a national media darling.
“I wouldn’t consider anywhere else,” Drew said.