Research - NOVEMBER 5, 2019

Retail availability throughout San Francisco remains tight

by Andrea Zander

Retail availability throughout San Francisco remains tight, with the vacancy rate among the lowest in the nation, reported Cushman & Wakefield.

The San Francisco retail market ended third quarter 2019 with an overall vacancy rate of 2.9 percent. This was down 20 basis points from 3.1 percent in the second quarter and 100 basis points from 3.9 percent one year ago. Tenant demand remains strong for the ample consumer dollars in San Francisco. Rising security concerns, however, are a growing cause for the delay of retail transactions.

Fitness, beauty, small-format and plant-based food concepts, entertainment, and digital native brands looking for brick-and-mortar presence continue to make up a significant percentage of leasing transactions in CBD areas and active retail corridors, reported Cushman & Wakefield.

Union Square remains San Francisco’s most prestigious retail district for both local shoppers and tourists. The direct vacancy rate in Union Square was recorded at 6.1 percent in third quarter 2019. It was down from 6.8 percent in the previous quarter, but up 80 basis points from the 5.3 percent rate one year ago.

The rental rate for premier ground-floor retail in Union Square was $650 per square foot per year, similar to the rate in the second quarter, but a decline of 5.8 percent year-over-year. Meanwhile the rental rate on Post Street was $420 per square foot, down 16 percent from one year earlier.

Pop-up shops and short-term deals dominated the retail lease transactions in Union Square. Gump’s, a San Francisco’s luxury department store, which closed its 157-year old store in December 2018, is opening a holiday pop-up store at 250 Post St. Argent, a women’s workwear store, opened a pop-up store at 361 Sutter St.

The trend of entertainment concepts continued, with Sandbox VR, a virtual reality arcade game and startup from Hong Kong, signing a lease at 767 Market St. at the Four Seasons Hotel and Yerba Buena Lane. The VOID, a VR experience center, opened its new San Francisco location in Westfield San Francisco Centre at 865 Market St.

Meanwhile, A.P.C., a ready-to-wear brand from Paris, and Mephisto, a French shoe store, opened on Geary in Union Square — joining the line-up of French tenants on lower Geary, with Vilebrequin, Diptyque, Anne Fontaine and Zadig et Voltaire. Other shop openings in Union Square included Re:Store, a “co-working” space for retail, at 120 Maiden Lane.

The retail investment market was very active during third quarter 2019 and recorded the second highest quarterly sales volume since 2008 (the highest sales volume was recorded in first quarter 2017). According to Real Capital Analytics, approximately 514,600 square feet of retail property traded hands, with the total sales volume at $446.2 million or $867 per square foot.

The two largest retail center transactions in San Francisco during the third quarter were 6x6 and Lakeshore Plaza. 6x6, a 250,000-square-foot, six-story building at Market and Sixth streets in the Mid-Market submarket, was sold by Cypress Equities to Alexandria Real Estate Equities and TMG Partners, which plan to secure it as a mixed-use project with a strong retail presence. Meanwhile, Donahue Schriber Realty Group acquired the 122,900-square-foot Lakeshore Plaza, which is anchored by Lucky, Ross Dress for Less, Petco and Big 5 Sporting Group, for $105.3 million or $857 per square foot.

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