Eager to revitalize Palo Alto's business sector after three years of economic turbulence and uncertainty, city leaders pledged Monday to take a fresh look at how the city could help rather than hinder its retail districts.

By a unanimous vote, the City Council adopted a new Comprehensive Business Strategy that calls for streamlining the process businesses go through to get permits, adding housing in commercial districts and possibly reversing a citywide policy that requires retail on the ground floor of commercial buildings across the city.

As part of the vote, the council agreed to create a new ad hoc committee to review and revise the city's retail regulations, including zoning overlay districts that currently impose strict limits on land uses.

It also specifically charged its Planning and Transportation Commission with taking another look at the city's existing laws that require ground-floor retail in commercial areas throughout the city to determine if they are effective or should be revised.

The plan was crafted by the consulting firms Streetsense and HdL Companies, which spent months surveying the Palo Alto's retail scene and developing recommendations to address many of the challenges faced by local businesses and property owners.

The challenges vary by area of town. In downtown, grime and crime are all the rage. In California Avenue, vacancies are a glaring problem.

In Midtown, the top priority these days is saving community-serving businesses — a problem that became acute this year after a February fire destroyed a shopping plaza on Middlefield Road and Loma Verde Avenue. Then last month the owner of Mike's Diner Bar announced his landlord issued him an eviction notice because his rent payment was one day late.

All areas, however, have a common challenge: the difficulty of staying competitive at a time when both online shopping and remote working have exploded in popularity.

The Streetsense report concluded that hybrid work has reduced demand for retail in Palo Alto by more than 100,000 square feet, roughly equivalent to the amount of retail in Midtown and Charleston shopping centers combined.

"The reduction in Palo Alto's daytime population means less spending available to support retailers," the Streetsense report states.

At the same time, the report notes that significant development is planned in surrounding cities, with about 17,700 dwellings and 15.8 million square feet of office and life science spaces in the pipeline.

The additional development, the report argues, will "improve these competitive markets, making them more compelling locations for retailers."

Larissa Ortiz, managing director at Streetsense, suggested Monday that the current retail environment places tenants in the driver's seat.

"Palo Alto is competing in the way it has never before had to compete for tenants who are looking at other places in this market," Ortiz said.

Two different paths to revitalization

So what is a city to do? On that, there are two main schools of thought.

One, which is championed by the Streetsense report, calls for taking a sweeping look at citywide policies that may hinder growth and vitality.

In 2015, the council passed a law that bans ground-floor retail space from turning into offices or other non-retail uses across the city. The report notes that when the policy was enacted, the commercial market was robust and offices were replacing retail.

Since then, the office vacancy rate has gone up from 2.8% to 14%, and the report suggests that figure is not expected to drop back down any time soon. The consultants suggested that Palo Alto should limit the retail-protection law to areas where retail is actually viable.

To insist on leasing space to a retailer where it wouldn't do well would be a disservice to that business, Ortiz said.

The council concurred and directed the Planning and Transportation Commission to review the retail-protection ordinance with a special emphasis on geographic applicability.

The other school of thought sees Palo Alto's retail problems as primarily a product of landlords' greed and the city's apathy.

Rather than remove retail protections and pick apart the zoning code, the city should focus on solving the acute problems in each distinct business district, proponents of this view argued Monday.

Numerous residents at Monday's hearing cited the example of Mike's Diner Bar, which they described as a neighborhood jewel that the city can't afford to lose.

They urged the city to become more involved in resolving disputes between property owners and tenants as well as more proactive about finding businesses to fill vacancies.

Midtown resident Annette Glanckopf said that losing Mike's could be "the final nail in the coffin for Midtown." The shopping area has lost 15 businesses since the pandemic, she said. She urged city staff to "go out and encourage the right retail for the right location."

"We need charismatic staff who really understand retail and can work with new small businesses … as well as property managers to persuade these new businesses to locate in the right areas," Glanckopf said.

She also urged the council appoint an ombudsperson who would help small businesses get through the city's permitting process. The person could also take a fresh look at what's allowed to move in to neighborhood shopping plazas, particularly those in which personal services have replaced retail.

Jeff Levinsky, a land-use watchdog with the umbrella group Palo Alto Neighborhoods, likewise asked the council to appoint someone who could "close deals" to address retail vacancies.

"Without focus and direction, opportunities like reopening the Middlefield/Loma Verde shops will take too long," Levinsky said, referring to the plaza that included Philz Coffee, Bills Café, AJ Cleaners and Palo Alto Fine Wine and Spirits.

"We're sure with the right person at the helm, clear goals, community collaboration and swift enforcement, we can revive and sustain the thriving retail sector for all who work, live in and visit Palo Alto to enjoy."

Just about everyone agreed that the city should do more to spruce up its commercial areas, whether downtown or Midtown.

Glanckopf observed that it's been many years since the city has undertaken any improvement projects in the Midtown Shopping Center.

John Shenk, CEO of Thoits Bros., described downtown streets in Dickensian terms and called the district "tired and functionally obsolete."

"Our streets and sidewalks are greasy and stained. Our tree wells are tripping hazards. Our sidewalks are heaved and broken. Our parklets are unsafe and fail to comply with basic building codes," Shenk said.

He also urged the city to invest in refreshing downtown's infrastructure and to make the shopping areas safer by hiring more police to patrol by bike and foot.

The feeling of safety, he said, "continues to deteriorate."

Council supports ombudsperson idea, and housing

The council generally supported the report's recommendations, particularly ones that call for streamlining the city's permitting process. This could also include hiring the ombudsperson as many neighborhood residents had recommended.

"We have rightfully earned a reputation in this community for a variety of reasons of having really a lot of barriers to businesses coming in," said Council member Pat Burt, who supported the ombudsman idea. "Some of them are important for the qualities that we've sought but others are just barriers — silly things."

Council members also agreed that a good way to mitigate the loss of daytime workers — and their spending dollars — is to build more housing around downtown and California Avenue.

To that end, they directed planning staff to return with proposals that would encourage that, which will likely involve easing limits on how tall and dense buildings can be.

Council member Greg Tanaka strongly supported the proposed initiatives and suggested that the city also consider relaxing restrictions on land uses in areas like California Avenue, which has about 31,000 square feet of vacant retail space — roughly equivalent to a neighborhood shopping center.

"Having a vacancy is like a black hole — it kind of takes other things with it. I think we need to be a lot more flexible with it. … That nothingness grows and spreads and it's unstoppable, unfortunately," Tanaka said.