Retail Market “Strong as Ever,” Says C&W

SAN FRANCISCO—Demand for San Francisco retail space is as strong as ever in the third quarter, with overall vacancy at 2.2%, down a minimal 20 bps quarter-to-quarter and identical to the vacancy rate at end of 3Q 2013. Prime retail space continues to be taken off the market faster than it can be made available. This according to the Marketbeat Retail Snapshot report from Cushman & Wakefield.

TargetExpress picked up a significant retail block currently occupied by Wells Fargo at 225 Bush Street in the Financial District. Designed with office workers and commuters in mind, the 18,000 square foot small-format Target store, due to open in Spring 2015. A proposal for a second TargetExpress has been submitted for the vacant space at 1830 Ocean Avenue in the Outer Richmond with hopes of opening by year end 2015.

Specialty coffee chains are expanding their loctations, too. Blue Bottle Coffee will be opening its fifth city location at 115 Sansome Street in the heart of the Financial District. Two blocks away, Philz Coffee will open its seventh location.

On the downside, the San Francisco development boom has caused many historic businesses to face closures. Lombardi Sports, a San Francisco-Russian Hill sporting goods mainstay since 1948, will be closed and demolished for 62 condominiums, ground floor retail, and underground parking. In Chinatown, the Empress of China, a 47-year-old restaurant and popular wedding venue will be sold and converted to office space. Closures of these historic buildings has brought concern over San Francisco's uniqueness and has prompted legislation to define legacy businesses with tax incentives to stay. Vacancy in Union Square remains extremely low as luxury retailers compete for retail space. The vacancy rate stood at 2.0% at the end of the 3rd quarter, down from 2.2% the previous quarter and 1.3% at the end of 3Q 2013.

Rents rose to $600 PSF from the previous quarter, up a strong 20% from the previous quarter and 15% year-over-year.

With new office and residential developments, the San Francisco retail market is expected to continue expanding at a fervent pace. The new Golden State Warrior's arena will bring a new market for retail, office, and residential to Mission Bay. The completion of the Transbay Transit Center Project will streamline public transportation from around the Bay Area, increasing accessibility to employment and presenting a boon to the retail sector. Cushman & Wakefield expects the retail market to continue trending upward.