Orange County missed out on $18 million in sales tax revenue in 2016 due to a lack of retail in the area, according to information from this year’s State of the Community Report.
Chapel Hill’s proximity to Durham, lack of land, town procedures and the national increase of online retail have created a steady “retail gap” in the region for years.
The retail gap happens when residents report spending more money than businesses in the area report in sales, meaning residents are going to other areas to do their shopping.
This year’s State of the Community Report said the gap for Orange County was $800 million in 2016 — much bigger than neighboring counties. Durham’s retail gap was just $100 million.
The town has been concerned with the gap since 2007 and completed research in 2009. The county collects 2.25 percent in sales tax, so the $800 million gap kept the county from an extra $18 million in revenue.
Dwight Bassett, economic development officer for the Town of Chapel Hill, said the extra sales tax revenue the town missed out on could have been used to support more in the community, such as the arts.
Having a diverse retail base also improves the town’s livability because residents don’t have to leave to get products. The retail diversity within Durham’s corporate limits has helped attract jobs, Bassett said.
Mike Clayton, owner of Clayton Commercial Realty, said residents need to decide if they would rather fund the town through personal and property taxes or by spending locally and contributing to sales tax revenue — and then vote for local officials accordingly.
In 2016, the Town and county jointly committed to giving Wegmans a $4 million incentive to come to the area as long as the grocery store showed a gain in sales taxes. The project’s property and sales tax is projected to add about $800,000 to the town’s yearly income.
Bassett said the Town has a history of long conversations with developers before they come to the area.
“There’s no denying that, but we’re in a place now if we saw the opportunity and interest (from retailers) we will do whatever we can to get a yes out of that development,” Bassett said.
Clayton said companies in Chapel Hill face large barriers for entry that can deter potential developers, like high real estate taxes and costs for services.
“I’ve been in commercial real estate 25 years,” Clayton said. “And people used to think that was an oxymoron in Chapel Hill.”
He said the process with the Town is getting a little bit better for developers, but politics have been a driving force behind the retail gap. The permitting process — often taking two or three years — and town fees are among some of the factors that make the retail development process longer, he said.
“We’re still a University-driven retirement town for wealthy folks,” Clayton said.
Another deterrent for potential developers is Chapel Hill’s lack of land. The Streets at Southpoint developed about eight miles east of the town in Durham due to sufficient land there, Bassett said.
Clayton said the Town doesn’t have commercial land readily available, and nothing can be built past I-40 toward Hillsborough because there’s no water and sewer access in the area.
The new Carraway Village project on the Chapel Hill side of I-40 has the potential to add retail for the area. Bassett said they’ve been approved for any kind of commercial retail or offices and will most likely announce their tenants in the spring of 2019.
Elinor Landess, interim executive director for the Chapel Hill Downtown Partnership, said only 16 percent of downtown businesses were retail. Both the local market and the national trend of less brick and mortar retail influence downtown businesses, she said.
“Given the national state of retail, we’re not gonna see substantial development in retail,” Bassett said. “We could see it as a component of development, anchored by something that generates traffic.”
He said the town rarely gets a look from major retailers because of its proximity to already developed retail areas, like The Streets at Southpoint.
“When retailers choose a spot on the map, they draw a five mile circle around it,” Bassett said. “It makes it more difficult to replicate what’s already in the area.”
While the town will probably never get the level of retail Durham has, Bassett thinks the town has potential to attract more niche-oriented retail.
He said these could be smaller to medium-sized tenants that sell specialty products and that aren’t currently doing business in the state. Bassett said if the town could attract that kind of retail, it could provide higher quality products for residents and draw customers from outside the corporate limits.
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