Is SF The Nation's Tightest Retail Market?

SAN FRANCISCO—San Francisco may have the tightest retail market in the country. According to a new retail report from DTZ Retail, the city's retail vacancy rate fell to 3.1% in the final quarter of 2014, inching it to the bottom of the list in terms of available space. Much of this growth is from newly opened shops, restaurants and concept stores, which shows the city's outstanding ability to attract new talent.

Average asking rents for triple-net leased product is $59.29 per square foot, however, while that is the average, the number doesn't show the extreme rents. In some areas of the city, asking rents are reaching the $100 mark, while popular destinations like Union Square is generating $500 per square foot rents.

These two statistics mean that the biggest challenge of the San Francisco market is finding quality available space. The survey shows that the city had only 1.65 million square feet of gross leasable space at the end of last year. Only 81,500 square feet of space was available of on sub-lease contract, and 86% of the available space was made up of units 6,000 square feet or smaller, with only seven options available at 25,000 square feet or higher.

The good news is that development is at an all-time high. Market Street Place, a 240,000-square-foot retail development, is the only “pure” retail project underway. It is expected to come online in Spring 2016. The other projects under development are part of multifamily and office mixed-use projects, mostly in the Mid-Market, South Financial and Mission Bay submarkets. Those are expected to add another 700,00 square feet of retail space to the market. Other major projects include the Golden State Arena and Pier 70 could help to add an additional 1.2 million square feet of retail space to the market.

The report predicts that the market will remain tight with vacancy rates dipping to below 3% in the early part of the year. One of the trends expected to emerge this year is the shift to 24/7 retail options, particularly in the South Financial and SoMa markets.