GO
Loading...

NY's restaurants may fall victim to the city's success

Not everything that is golden can last.

The closing of New York City eateries is inundating news as of late—from the coming shuttering of Danny Meyer's Union Square Café to the serving of the last Cuban sandwich at Casa Havana in Chelsea and the final burger at Soup Burg on the Upper East Side. Exorbitant rents have been blamed for the growing trend.

Union Square Cafe signage in New York City. Restauranteur Danny Meyer says his lease is up at the end of 2015 and he will not be renewing it at that location due to an increase in rent.
Source: Peter Bond | Wikipedia
Union Square Cafe signage in New York City. Restauranteur Danny Meyer says his lease is up at the end of 2015 and he will not be renewing it at that location due to an increase in rent.

Meyer took to The New York Times to lament the new rent rate he said prompted plans to close his doors in Union Square, and the Greenwich Village Society for Historic Preservation held a panel discussion on the issue that asked "can we staunch the bleeding?"

Read More Get ready for the New York real estate bubble to POP!

But is this truly an issue with attributable blame, or an unavoidable facet of the city's progression? As Mitchell Moss, professor of urban policy and planning at New York University's Wagner School of Public Service, said, "One of the great ironies of New York is that we don't live in the past."

'Transient neighborhoods'

Stacey Sutton, assistant professor of urban planning at Columbia University, said she expects rising rents are adversely affecting neighborhoods by pushing out important bastions of diversity and vitality.

"That has a huge impact on the culture of a place, not just because a place closes but also because there's lots of turnover. It makes it feel like a transient neighborhood ... that momentum is problematic," said Sutton. "The residents and how they get attached to a neighborhood, restaurants and eateries and places where they gather, that's huge."

Sutton said that a mix of factors could lead to businesses being unable to pay rent increases. These range from a lack of mediation between landlords and entrepreneurs, the inability of restaurants to generate profits until after a few years of opening and the simple fact that "sometimes you can't sell enough bagels to pay a rent increase."

Read More Union Square Cafe joins other victims of New York City's rising rents

One example of how a business can be interwoven with the fabric of a neighborhood is Russ & Daughters, a 100-year-old, family owned shop that sells traditional Jewish goods such as smoked whitefish salad, belly lox, chopped liver and house-baked rye bread. The business is very much tied to the neighborhood's immigrant past and it has never budged from the Lower East Side.

"I think they're definitely a cultural institution and an institution of this neighborhood," said Carlina Rivera of Good Old Lower East Side, a neighborhood housing and preservation association. "They bring a lot of people to the neighborhood, and that contributes to economic development."

This year, Russ & Daughters added to its legacy by opening a café.

Read MoreThe secret to a New York culinary institution's longevity

"The store and now the café are very intertwined with the culture [of the Lower East Side] and the culture of the city, New York. We've always been on the Lower East Side and we continue to be on the Lower East Side, so it feels great for us to be upholding a tradition that is not so prevalent any more, but also as a small business, just to be here in a city where it's more and more difficult to be a small business," fourth-generation owner Josh Russ Tupper said.

Success 'not wedded to the past'

On the other side of the issue, the closing of restaurants is seen as a sign of a successful economy in a naturally evolving city.

"We don't have rent control in New York for commercial space and the market is how we allocate commercial space, so naturally rents go up," said Moss. "We have an all-time high population, so there shouldn't be a surprise that there's a demand for space. We have millions of people coming to visit, so it should be no surprise that rents are going up."

Moss went on to explain that if rising rates do push businesses to relocate, that this spurns revitalization in other areas of the city, and that such developments are a good thing, as evidenced by the blossoming dining scene in Brooklyn.

"What's interesting is that the success of New York is that we create sectors of new activity, and sometimes that has to be done through relocation. There's always a handful of elitists who are opposed to change, but New York is successful because it adapts and accepts new people and activities, it's not wedded to the past," said Moss.

Read More The best real estate plays in 25 years

The claims that exorbitant hikes are pushing restaurants under also is a matter of debate.

"My take on the issue is that restaurants are one of the most, if not the most vulnerable businesses," said Steve Spinola, president of the Real Estate Board of New York. "There's costs, there's other restaurants, there's changing chefs, there's going out of popularity, there's always city regulations and fines."

Read More Low rates boost REITs, commercial real estate stocks

Spinola said that a few stories of restaurants going out of business is in no way a significant enough reason to blame rents as the cause of their demise. For proof of his point, Spinola points to the fact that "today we have more restaurants in NYC than ever before and more liquor licenses than ever before."

This, he said, would not be possible if rents were not reasonably tied to supply and demand.

"Owners aren't looking to create vacant space," Spinola said. "They're looking to do two things with their property, they're looking for the right diversity for their space, and they'll also have to take into consideration sometimes owners make mistakes and they charge too much and they find themselves with an empty store for a period of time—that's their mistake. They'll have to pay taxes and they'll have no income coming in."

An 'active city' or a cycle 'killing itself'

Moss upholds the value of the New York real estate market as an incentive to not only revitalize neighborhoods in the future, but also to make once-undervalued spaces into viable property.

"We have supermarkets that are underground, we have restaurants that are totally in the basement ... New York is very creative when it comes to creating value out of what are typically undervalued locations," said Moss. "Every activity has found a way to try and realign themselves as demand for space increases."

Sutton, on the other hand, is worried that the lack of rent control legislation for commercial real estate could lead to a "leaching of diversity" and a city that "ends up killing itself because of its success."

"I think that developers can still make a profit if you put a cap on the rent increases, maybe 50 percent. Most leases don't go up that much, so were just talking about the most egregious offenders when it comes to landowners," said Sutton.

"You don't want a static city, but there's a difference ... we want an active city but we don't want a transient city. We want a city that isn't changing so much that people can't set down roots."

By Bo McMillan, special to CNBC.com

Contact Restaurants

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More