Should Offices Be Allowed In Retail Zones?

Here's a riddle for you … how much sales tax is collected by a town from a storefront that is vacant? Not the toughest of riddles. In fact, the answer is rather obvious. A fifth grader can figure it out. The answer is NONE. Several years ago when the commercial real estate market was really…

Here's a riddle for you … how much sales tax is collected by a town from a storefront that is vacant? Not the toughest of riddles. In fact, the answer is rather obvious. A fifth grader can figure it out. The answer is NONE.

Several years ago when the commercial real estate market was really humming, some towns got the notification that they needed to make it illegal to allow offices (ie real estate, accounting, doctors, lawyers, chiropractors, physical therapy, etc.) in their ” prime “retail zoned areas. The theory being advanced at the time was villages should not “clog up” their limited retail spaces with non-sales tax generating businesses. Sales tax is a valuable source of revenue in any town's budget. So, it sort of made good sense not to do anything that would jeopardize potential for collecting such sales tax. Non home rule communities get rebated from the State of Illinois 1% out of 7% or so collected on each retail sale. Some home rule communities like Crystal Lake have higher sales taxes that the voters have agreed to incur and collect more than 1%.

Service businesses like dry cleaners, tanning salons, etc, do not generate sales tax (YET) but these types of businesses do not seem to get the same “stiff arm” as the office type businesses in the typical zoning regulations.

Here's the problem … the commercial real estate market has not been “humming” for about four years and you may have noticed a lot of vacant storefronts in the various communities where you do your shopping. Do you think it would be better to put an office type use in that vacant space or just leave it vacant? If you were the landlord, I do not think you would think twice about this one.

Different times call for different thinking on the part of municipalities. I agree, if a buyer wants to come to your town, you would like to be able to accommodate him or her. But, if an office user wants to locate by the local Jewel and there is a vacant space available, why not let him go there without making him jump through bureaucratic hoops like special use permits (which cost money and take extra time)? It turns out office workers have this weird habit … they eat lunch every day. At lunch time, they go out and patronize the local eating establishments a few doors down from their office. They'll stop and have a cup of coffee and donut at the Dunkin Donuts, they'll stop at Jewel on their way home and buy groceries. Do you know what I'm saying?

The office employees spend dollars in the nearby retail establishments because those establishments are convenient to where they work. And those purchases generate sales tax that may never occur if this retail establishment were not convenient. What a concept!

In addition, these office uses create new job opportunities in town and they pay rent to landlords who have been suffering greatly from overall lack of demand for their space. Get too much vacancy and they can not pay their mortgage and may have to lose their valuable hard-earned asset to the bank. This has been happening all around us for four years!

Towns that will admit they do not currently allow offices in their retail zones include Cary (that's all I could find … surely there are others). Towns that routinely permit office uses in their retail zones include Crystal Lake, Fox River Grove, Lake in the Hills, Algonquin and McHenry. Algonquin requires a special use process for medical. Medical uses typically have higher parking requirements and need closer scrutiny that may justify a special use process.

I'd like to ask any town that restricts office uses in retail zones to re-think its post on this subject and immediately take steps to dial back on this economically hurtful practice. The laws of supply the demand, if allowed to work without government interference, will cause more retail space to be built if by chance your “prime” retail space gets filled up with office type uses. Is that such a bad thing? How many new retail centers have you seen being built properly?

It will be a lot easier to return to a stabilized prosperous commercial real estate market if local Governments can see the error of their ways on this subject and permit office uses in ALL their retail zoned areas.