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The dynamics of gentrification and small businesses

Gentrification doesn’t happen in a vacuum. It often follows decades of systemic disinvestment where suppressed property values give way to surging prices when new development—and with it new interest in the neighborhood—finally arrives. This shift can displace longtime residents and small businesses who struggle with rising rents in new mixed-use developments. Our Foot Traffic Ahead report indicates a retail real estate price premium of 41% for walkable urban places. However, if the small businesses and services that have historically supported longtime residents vanish, the overall neighborhood identity suffers. While local governments benefit from increased property tax revenue, as neighborhoods grow and attract new investment, communities must grapple with how to equitably preserve neighborhood character, ensure a diversity of commercial offerings, and align economic development policy with inclusive values.

For example, SGA worked with ICF in Redmond, Washington to implement transit-oriented development with small-scale retail retention in mind. Rapid growth and rising land costs near new transit stops led to the loss of existing strip malls and industrial sites where many small businesses operated. Key recommendations included requiring new developments to provide ground-floor retail, establishing partnerships that secure property or offer master leases at affordable rates, and creating place-based management organizations—like a district authority or business improvement area—to support marketing, safety, and branding efforts.

Potential solutions beyond one city

While Redmond’s experience provides useful lessons, cities across the nation are experimenting with various tools to mitigate the adverse impacts of gentrification on small-scale retail:

• Zoning overlays and ground floor requirements: Many urban areas, from Portland to Denver, have enacted zoning overlays or ordinances that require ground-floor commercial space in newly built residential projects. By stipulating that new developments must include retail units of certain sizes (for example, smaller footprints that meet the needs of local entrepreneurs), cities can help ensure a more balanced mix of businesses. This helps maintain neighborhood vibrancy and offers opportunities for small retailers that might otherwise be squeezed out.
• Community land trusts and investment funds: Community Land Trusts (CLTs) are nonprofit or community-led entities that acquire and hold land for long-term affordability. In Denver, the Urban Land Conservancy uses a CLT model to buy properties near transit corridors, preserving lower-cost commercial spaces for local small businesses. These efforts can be supported by investment funds—sometimes seeded by philanthropy or major employers—that offer favorable financing to purchase or rehabilitate properties for community-serving retailers.
• Master lease and incubator programs: Master lease programs can exist where a city agency or nonprofit rents a commercial property at market rate, then subleases segments to small businesses at more affordable rents. These programs often include business incubators or pop-up markets that provide emerging entrepreneurs with short-term, flexible leases and exposure to customer foot traffic. Incubators also can support mentoring, shared marketing efforts, and access to low-interest capital, increasing the likelihood of success for newer, smaller retailers.
• Business improvement areas and technical assistance: To help small businesses navigate changing demographics and rising rents, some cities establish Business Improvement Areas (BIAs). Funded by property or business assessments within a defined district, BIAs can offer marketing campaigns, community events, and advocacy for tenant improvements. They also connect businesses with technical support on everything from digital marketing to the loan application process. Cities from Los Angeles to Chicago have found that well-structured BIAs can be powerful in boosting both revenue and the sense of belonging within an evolving neighborhood.

Gentrification’s impacts on small-scale retail highlights a larger challenge of balancing growth with social equity. For small businesses that form the cultural core of a community, displacement isn’t just a financial burden—it’s an existential threat. Policymakers must craft and refine place-based strategies—like zoning overlays, CLTs, or BIAs—so that local retailers can remain financially viable in evolving market conditions. While solutions vary by city, consistent themes include proactive city leadership, public-private partnerships, and strong relationships with community-based organizations.

Ultimately, the test of an equitable development policy is whether it preserves the diverse tapestry of shops, restaurants, and services that shape a neighborhood’s identity. By adopting policies tailored to local needs, supporting collaborative investment models, and being prepared to intervene early in rapidly changing real estate markets, cities can foster inclusive economic development and ensure that small-scale retail remains a vibrant part of urban life.