Empty stores boost lease deals
July 1, 2009
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| Going out of business: Some of the strongest and most vibrant retail markets currently in San Francisco are Chestnut and Castro streets and in Hayes Valley. (Mike Koozmin/Special to The Examiner) |
SAN FRANCISCO — A spike in empty storefronts and a drop in retail rental prices could help fertilize a future crop of local and independently owned stores operating in The City.
Between September and March, when the recession was at its worst, storefronts emptied, but no notable businesses moved in, according to Ross Portugeis, San Francisco-based retail broker for international real estate firm Colliers International.
As a result, San Francisco’s retail vacancy rate leaped in the past year from 3 or 4 percent to 12 or 13 percent, according to Portugeis.
During the same period, many retail tenants renegotiated with their landlords to reduce the amount they spend on rent, according to Portugeis and others.
“Between September and March, [the retail rental market] was just dead — you could hear a pin drop,” Portugeis said.
But that changed subtly in May.
Large national chains are beginning to plot new expansion and repositioning strategies that could see them start to rent empty storefronts in the future, according to Portugeis.
More immediately, however, local businesses are beginning to search for real estate deals, he said.
“You see more local activity than national. They’re probably more attuned to the market and have a better sense of what they’re looking at.
It’s not like a big corporation, which has to look at what it’s doing across 50 states,” Portugeis said.
Portugeis does not expect San Francisco’s empty storefronts to hurriedly fill with new tenants, but feels that the market is stabilizing.
“Until May, you couldn’t even have anybody talk to you. Now, you’re in protracted and grueling negotiations,” he said.
The overall drop in lease prices has been a worldwide occurrence, according to a report released this week by international real estate company C.B. Richard Ellis. The report, which places San Francisco as the 10th most expensive place in the world to lease retail space, said rents fell worldwide in the first quarter of this year and will continue to decline until the middle of 2010.
And whether it’s the drop in prices or the availability of spaces, there are businesses hunting for new space.
Businesses that appear to be searching most actively for space in San Francisco include restaurants, markets and drugstores, according to Edward Plant, owner of Edward Plant Co. Inc., which specializes in leasing retail space in San Francisco.
The fashion industry, on the other hand, appears to be very weak, he said.
Some of the strongest and most vibrant retail markets can be found along Chestnut and Castro streets and in Hayes Valley, according
to Plant.
Some of the weakest markets, with the highest vacancy rates, are on Union, Fillmore and Valencia streets, he said.
Rents have not fallen dramatically, according to Plant, but he said there have been very few deals signed recently; a shortage of deals makes it difficult to gauge prices.
San Francisco’s chief economist, Ted Egan, does not expect falling rental prices to have a significant impact on The City’s tax receipts.
“Falling retail rents is really an effect rather than the cause of a weak economy,” he said. “The drop-off in retail activity is what’s driving falling rents.”
Nevertheless, the drop in consumer spending has been one of the factors impacting San Francisco’s budget deficit, because it has reduced The City’s sales-tax revenue, according to Egan.
Business expenses
S.F. is among the priciest cities in the world to rent retail space.
City Annual price per square foot*
New York $1,800
Hong Kong $975
Moscow $790
Paris $776
Tokyo $771
London $677
Sydney $624
Zurich $612
Los Angeles $600
San Francisco $540
Dublin $521
Brisbane, Australia $504
Chicago $500
Guangzhou, China $489
Milan $455
* Cost of prime retail space
Source: C.B. Richard Ellis
jupton@sfexaminer.com
