First New Union Square Space Since 80s Goes Vertical

SAN FRANCISCO—300 Grant Ave. in Union Square–an approximately 70,000-square-foot development project–began construction last month with plans for delivery in fall 2019 and opening in spring 2020. The ground-up development will consist of six floors, with retail on the first three floors and class-A creative office space on the upper level.

Rising up at the corner of Sutter and Grant, the building sits just steps from the Financial District and Chinatown’s famed Dragon Gate. Its location in the glamorous shopping district will be amid luxury brands, Harry Winston, Dior, Valentino and Cartier, all of which occupy corner locations. The site is also across the street from Banana Republic’s global flagship store; also a corner location.

Cushman & Wakefield was appointed by A-Z 300 Grant LLC as the retail leasing brokerage team. Vice chairman Kazuko Morgan, senior managing director Pam Mendelsohn and managing director Rhonda Diaz will be the landlord’s retail leasing representatives.

Morgan said the arrival of 300 Grant Ave. has been one of the city’s most highly anticipated retail opportunities with 180 feet of trophy retail frontage. It is the first ground-up retail and office development in Union Square since the mid-1980s.

“300 Grant represents a literal coming together of the city’s premier retail, tourist and business quarters in a neighborhood with more foot traffic and amenities than anywhere else in San Francisco,” Morgan said. “300 Grant Ave is a one-of-a-kind corner location in San Francisco’s most famous shopping district. Corner Union Square availabilities are rare and highly sought after.”

Mendelsohn, who has helped to shape the way retail has grown in San Francisco, making its retail districts as unique as the city itself, said it is likely the development will spark interest from several elite flagship brands and bespoke fashion boutiques.

“Our team is committed to properly curating the mix and not just filling the space,” he says. “We plan on bringing leading-edge retailers, the kinds of stores that San Franciscans and visitors to the city like to shop.”

The latest Cushman & Wakefield retail report says despite the strength of the San Francisco economy, including the tourism industry, retail continued to face challenges in the first quarter of 2018. Although retail availabilities throughout the neighborhoods of San Francisco remained tight with the vacancy rate among the lowest in the nation, the figure has been trending higher, GlobeSt.com learns.

The overall first quarter vacancy rate stood at 3.3%, ticking up 10 basis points from 3.2% last quarter and 70 basis points from 2.6% last year. The closing and downsizing of stores as part of the strategic plan of many retailers after the 2017 holiday season contributed to the increase in vacancy during the first quarter of 2018. That pullback was partially driven by the need to correct what had been an overexpansion of physical locations and a decision made to grow via e-commerce instead.

Rents that remain at elevated levels in prime areas plus increasing personnel costs and worker shortages also contributed to store closures. Finally, experiential retail continued to gain an edge over traditional merchandising, which has resulted in a pause in leasing activity while landlords and tenants rethink the best way to use space, according to the report.

Much of the same is evident in Union Square, where leasing activities softened in the first quarter. Due to the aforementioned store closures, direct vacancy has been on the rise in the retail mecca, increasing to 5% in the first quarter of 2018. That was a jump of 90 basis points from the 4.1% rate at the end of 2017 and 80 basis points from the 4.2% rate in the first quarter of 2017.

Rental rates for premier ground-floor retail space in Union Square have been flat since the fourth quarter of 2016 at $700 per square foot per year, GlobeSt.com learns. Meanwhile, the rental rates on Post Street have declined for the first time in years. There remains a preference by many tenants toward smaller spaces as retailers are more conscientious of total occupancy cost.

There has been very minimal leasing activity for long-term deals and retailers prefer short-term leases of less than three years. Consequently, landlords continue to be more aggressive on terms and all negotiations are taking longer to complete, according to Cushman & Wakefield. Some additional retail spaces are likely to come back on the market in Union Square throughout the remainder of 2018 such as 300 Grant. Other activity in the first quarter included Harry Winston’s first San Francisco store at 200 Post St.; Cartier relocating after 34 years at 250 Post St., opening its new 6,800-square-foot Maison at 199 Grant Ave.; and Tartine Bakery planning an outpost in Union Square’s Hotel G in the former location of 398 Brasserie at 398 Geary St., GlobeSt.com learns.