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Office Vacancies and the Impact of Ground Floor Retail in San Francisco

During the last days of lockdown 2021, it was apparent that the lack of office traffic was impacting retail in the cities visited.  Many businesses across America closed their doors permanently, but many retail businesses did not open because of the Lockdown.

Retail in Haight Ashbury had many vacancies without the office buildings, but it appears now, as ioptimize realty site reports, that downtown San Francisco has an office vacancy rate of 26% and an office occupancy rate of 44%. Many of the retail tenants are moving out entirely. Many cities are in the same boat but not on the scale of San Francisco.

Office Vacancies Impact on San Francisco

The Dynamics of the Impact on Retail with Less Workers Accessing Goods and Services

Fewer workers utilizing retail during the day have created problems in the dynamics of retail space utilization.  Businesses like dry cleaners and service businesses will have a shakeout as people wear different clothes than they would if they worked every day in an office.  More significant is the frequency of the workers’ appearance in and around the office building.   The kind of business that can do volume downtown to pay the rent changes.

The kinds of businesses that can afford the rent will compel building owners to make some adjustments concerning who they recruit to the spaces and the adjusted profit margin at the end of the tax year.  The landlords are already looking toward some level of adaptive reuse for the upper floor of the office buildings.

Issues Impacting on the Viability of Retail in Cities

Organized retail crime has compounded the problem of what is a viable retail use in the cities.  Recently, We observed people just taking goods out of a business. And wondered who is paying for this. The retail stores will never get that back, and it weighs on the profitability of the business and the ability to pay rent. The business is located on the ground floor of an office building, and even if it is by reputation, it affects the viability of the structure that supports that use.  

News reports from the San Francisco Standard report that approximately 203 retailers were open on the streets surrounding Union Square in 2019. By May 2023, only 107, or 53%, were still in business.

The 70-store downtown Westfield Mall has indicated it would stop making payments on a $558 million loan, walking away from any of the equity in the shopping center and leaving the future of the shopping complex needing to be clarified.

The list of stores that are seeking to close their retail locations and move from Downtown San Francisco is impressive:

Old Navy                                 Saks Off 5th

Anthropologie                       Amazon Go     

Whole Foods                          Office Depot

Arc’teryx                                 The RealReal

CB2                                          Banana Republic

Athleta                                    The Container Store

Crate & Barrel                        Abercrombie & Fitch

DSW                                        Disney

Uniqlo                                     Marshall’s 

H&M                                       Gap

Adaptive reuse for that much retail space Impacts the kind of retail that could survive in San Francisco. Creative uses would be good, but they cost money, and creative retail use with the amount of dysfunction. It needs to be in a better place to position a city as a credible retail destination to compensate for the loss of office workers shopping retail during the day.

Converted Space Office Will Impact the New Retail Development In San Francisco.

There is 44% of the office space is unoccupied, and 26% vacant and will probably have to be converted to housing at some point.  The zoning approvals and building modifications planning commission meeting will potentially take two years before they are approved.

Once construction is complete, whatever adaptive reuse of the office space is determined will be able to determine the uses of the ground floor.  The transition and the timetable for a new beginning for a retail renaissance in Downtown San Francisco cannot be determined.