Tech Demand Overflows to Industrial, Retail

SAN FRANCISCO-While demand remains strong in the San Francisco retail market, limited geographic availabilities continued to inhibit new retail construction. So says a recent retail report from Avison Young.

According to the firm, vacancy has remained close to 3% in the hotspots of the San Francisco market, including Downtown San Francisco and Union Square where rents remain high. Discount retailers are steadily growing and capitalizing on under-served areas with Target and Grocery Outlet opening stores in western San Francisco, says the firm

In terms of delivery, the firm expects 20,000 multi-residential units in the next 36 months, which it says will present new street level retail opportunities in neighborhoods like Mid-Market, which has been neglected for years.

On the industrial front, tech demand has overflowed into the industrial sector with growing tech firms looking towards unused industrial space to convert into open, creative space. Pinterest, for example, was successful with the transformation of 808 Brannan to serve as its head office, but companies are running into rezoning issues for many industrial buildings.

On the investment front, the firm points out that the San Francisco office market saw a slowing of investment activity in 2013 as the city came off one of the strongest market years since 2007. However, activity remained strong in 2013, with 28 office buildings changing hands, says the firm—notably 333 Bush St. which sold twice in 2013: it was purchased by Brookfield Asset

Management for $275 million in the third quarter, then sold to DivcoWest for $268 million in the fourth quarter.

The Transbay transit center redevelopment projects and a dominant tech industry have put the central business district and South of Market (SOMA) neighborhoods in the center of investment activity, adds Avison Young. “Look for investment activity to slow in 2014 as availabilities for top-tier buildings are decreasing.”