Rehoboth faces latest challenge: an unexpected exodus
REHOBOTH BEACH — Downtown businesses weathered a turbulent year with uneven economic recovery and a delayed summer season, but the next storm on the horizon might be the wave of iconic businesses moving out and changing the face of the resort city.
“I don’t know what the trends look like for the future, people and crowds change. I wish I had a crystal ball,” said Susan Giove, the 2021 president-elect of the Delaware Association of Realtors. “There’s always changeover with what’s trendy in each year, but there’s the pillars of the community. Everyone is challenged with making enough money in the summer to pay your bills and to sustain yourself until January.”
From walking under the neon orange Dolle’s sign on the boardwalk to grabbing dinner at the same restaurants for generations, Rehoboth Beach is a city marked with summertime and family traditions. But the enterprise of beach tradition may look different, as four business pillars are relocating from these high demand spaces.
Highly regarded Lewes Mexican restaurant Agave first planned a second location at 230 Rehoboth Ave. but later pivoted to the former Jake’s Seafood Restaurant off Route 1. Nicola Pizza and The Pond Bar — both in the city for at least 40 years — will be moving to two different shopping centers along the same highway in 2021. The biggest shock to the system was the announcement that Dolle’s Candyland would move from its focal corner boardwalk spot to a smaller space next door, while also taking down its iconic orange sign.
“We always expect to see a shuffle with leases around this time, but this is a little different,” Rehoboth Beach-Dewey Beach Chamber of Commerce CEO Carol Everhart said. “These guys are a tremendous loss for businesses. These icons are a feeling. It’s a longing. People want to get their photo by the Dolle’s sign, people want to get their pizza at Nicola’s. It’s not just selling a product, it’s selling an experience.”
Rehoboth Beach businesses have been buffeted hard by the pandemic, with an estimated $91 million loss in revenue. But while the pandemic may have changed the financial situation for many businesses, the constant struggles of high rent, limited parking and tough competition may propel resort business owners to start looking to commercial space along the busy highway.
The lease shuffle
Giove, who’s worked as a Realtor for 14 years and lived in southern Delaware even longer, pointed out that changing businesses is part of Rehoboth Beach. Trendy businesses last as long as the fads while others become staples, and these mainstays lasted longer because owners or investors bought the property “for a song” in the 1970s and 1980s, she said.
“These businesses are making a hand over fist, but if not, the big challenge is that prices of rent can get outrageous. When you start a business at the beach, you have to take into account that you got to make your money from Memorial Day to Labor Day, or else you’ll starve in the winter,” she said.
Taking a look at some of the commercial real estate listings right now, a Baltimore Avenue storefront is almost $2,700 a month without including tax payments, but a cottage turned law office off Rehoboth Avenue is $3,250 a month. Even then, it’s not as steep as the rent on the beach block. Giove estimated rent in a commercial space on the first floor of a boardwalk condominium at $7,500, including taxes and condo fees.
Dolle’s Candyland owner Tom Ibach said that relocating makes sense when it comes to dollars and cents. He said his landlord’s proposed lease extension on 1 Rehoboth Ave. was 75% to 80% higher than before, and with taxes, upkeep of the property and other responsibilities, it would be more than double than what he pays now.
“It’s not economically feasible. What people don’t understand is that in a 25-year lease, there’s periods it would increase based on the [consumer price] index,” Ibach told Delaware Business Times. “My speculation, and it’s just speculation, is that the landlord wanted to sell it and it would be easier to sell it without me here.”
Carrie Lingo, an associate broker with Jack Lingo, said that she’s seeing more landlords work with tenants as the pandemic drags on and revenues decline. But the high historical demand for Rehoboth will continue to steadily push commercial rent higher over time.
“There’s a majority of the landlords that try to work with their tenants, with rent abatement or other assistance. We’re all working tirelessly to survive and reinvent businesses with the ever changing orders, but a lot of businesses lost significant revenue,” Lingo said. “Unfortunately, not all businesses will survive this, and typically, when there’s a new tenant, the lease is renegotiated for a future tenant. It varies, but it can be more or less than what the previous lease rate left off.”
Since the Tanger Outlets arrived in the early 2000s, commercial space along Route 1 has thrived because of the new customers, high visibility and easier access to parking.
Nick Caggiano, owner of Nicola Pizza, said that while Rehoboth Beach has been great in the last 50 years, the move to Ocean One Plaza made sense. He owns the Home2Suites by Hilton, and hopes to consolidate offices and maybe build out a sports bar and outdoor dining.
“I have nothing negative to say about Rehoboth Beach, we have great memories from all our summers,” he said. “We just feel the new location has what we need in terms of office space and parking is an issue we’ve had in the past. That’s all that needs to be worked on in Rehoboth Beach. We attract people all over, so the traffic is the biggest issue. But it’s a great town to be in.”
The Pond is headed to The Shops At Sea Coast Plaza next year, catering to its existing nearby customer base. Its ample parking is also perfect for growing carry-out and delivery service, restaurant owner Pete Borsari said in a Facebook post announcing the decision. The new space would also have room to “build a stage, install a superior sound system and offer an expanded dance area” for its live music acts.
Rehoboth has long struggled with providing enough parking for its visitors, with the boardwalk specifically funnelling visitors to Rehoboth Avenue and limited spaces to meet the demand.
“Employees don’t want to park from a distance and take the bus or walk the 10 blocks, they want to be close to work,” Ibach said. “It’s tough to survive if the parking isn’t there, and the competition is tougher. Rent is so high, and you have some landlords that squeeze the businesses, while they’re trying to keep an eye on the competition and what they’re charging and what you’re charging.”
The pandemic has changed some tourism norms and traditions, but it’s unclear how long they will last. For many hotels and home rentals, post-Labor Day was popular this year with people looking to work closer to paradise instead of home. With social distance restrictions and tight finances, Everhart pointed out it may be a chance for Rehoboth Beach to gain ground in off-season business.
“Many businesses, local or not, will be looking to save money and virtual can help with that and the inability to gather will still affect some decisions,” she said. “People will still want to be near the water, no matter what.”
There’s hope for pent up demand spilling over, like with the massive crowds that flocked to Rehoboth after 9/11, and mass vaccination may boost consumer confidence. But still, Southern Tourism Executive Director Scott Thomas said a major draw for Rehoboth Beach was the nostalgia of family vacations and the traditions that are made on them.
“Traditions do have an impact on the market, they cross generations and grow over time. Look at Funland, we have people base their trips around the tradition of going there,” Thomas said. “You can’t underestimate that, and it’ll be interesting to see what transpires if more businesses move their locations and whether they can convince people to follow them.”
For Ibach and Caggiano, a summer without anchors like Nicola’s in downtown Rehoboth and the Dolle’s sign just marks another adjustment people will have to make.
“The beach is the reason why they come, and people will adjust. We’ll still be in town,” Ibach said. “Businesses may think it wasn’t worth it to pay rent half as much compared to the foot traffic. Or maybe more restaurants will follow them out there [to Route 1]. We’ll see. The pandemic really shook things loose.”
“The beach is the beach, the boardwalk is the boardwalk,” Caggiano said in a separate interview. “People want to come, and go to Funland and get some food and walk the boards. Those people who want that will continue to come, and there’s enough room for everyone.”