Great analysis. Any thoughts on “car-free” Market St? I’m a proponent of it but it launched the same time as the pandemic so some opponents accuse it of stifling downtown activity.
Also, have commercial retail rents not fallen as much as we would expect? Are they like stubborn home prices?
As someone who doesn't spend every day in SF, I can only comment so much about the car-free Market Street program. But my sense was that it wasn't a big deal -- I actually didn't even notice that it was car-free until someone mentioned it, because of the ample transit. It's not like the car-free program is preventing access to the neighborhood, so far as I could tell.
As for the prices, it was mentioned that some landlords in Union Square think that 2019 is coming back. They are holding out. They figure: why lock in a lease now at a low rate if you think that prices will go back up in the near future?
5 year leases?!? Jeez! I wonder if local taxes could have some kind of scaling built-in. For every year of vacancy, the landlord's taxes on that space go up 1%. That way the trade-off is clear and at some point there's a tax incentive to sell the building and thus an opportunity to redevelop it as something better/more useful. Plus the locality gets more revenue to offset the externality costs of the continued vacancy. Just spitballing.
I have thought about this idea...it seems hard and convoluted to enforce. Landlords can find other ways to essentially avoid the penalty. For example, near my house in Philly there is a CVS that has been vacant since 2021 I think and it's part of a massive building. If they were to get taxed on the vacant storefront, they'd just pass the cost on to the apartment tenants. I think this is a case where you need better carrots, not harder sticks.
The size of the retail space must also be contributing to vacancy. When a big box retailer leaves, a new small business that could replace it will likely need significantly less space, and may not be able to afford even a short term lease if it requires them to pay for space they aren’t using.
Yes, definitely. That was sort of my point about the Ferry Building -- big spaces carved up into smaller ones that are more accommodating to small businesses. Thanks!
This is a great insight, I would love to see something like this done with some of the empty retail spaces here in DC. We have also seen quite a few shocking closures here as business which seemed popular and well-trafficked have shut down after their rent was increased. Your point about wanting a tenant with established cash flow and longer lease terms makes sense, but I find it troubling that commercial rent is going up at the same time we are seeing a significant increase in vacancy.
It's funny you mention DC because I do feel like SF and DC are the two cities that have had the hardest time recovering from the pandemic. Both have a lot of remote work and both have not dropped prices. It will be interesting to see how DC fares with the new administration. I tend to think that the RTO push and layoffs will cancel each other out.
Great analysis. Any thoughts on “car-free” Market St? I’m a proponent of it but it launched the same time as the pandemic so some opponents accuse it of stifling downtown activity.
Also, have commercial retail rents not fallen as much as we would expect? Are they like stubborn home prices?
As someone who doesn't spend every day in SF, I can only comment so much about the car-free Market Street program. But my sense was that it wasn't a big deal -- I actually didn't even notice that it was car-free until someone mentioned it, because of the ample transit. It's not like the car-free program is preventing access to the neighborhood, so far as I could tell.
As for the prices, it was mentioned that some landlords in Union Square think that 2019 is coming back. They are holding out. They figure: why lock in a lease now at a low rate if you think that prices will go back up in the near future?
Donatello, Raphael, Leonardo and Michelangelo were all artists of the Italian Renaissance. Just so you know.
5 year leases?!? Jeez! I wonder if local taxes could have some kind of scaling built-in. For every year of vacancy, the landlord's taxes on that space go up 1%. That way the trade-off is clear and at some point there's a tax incentive to sell the building and thus an opportunity to redevelop it as something better/more useful. Plus the locality gets more revenue to offset the externality costs of the continued vacancy. Just spitballing.
I have thought about this idea...it seems hard and convoluted to enforce. Landlords can find other ways to essentially avoid the penalty. For example, near my house in Philly there is a CVS that has been vacant since 2021 I think and it's part of a massive building. If they were to get taxed on the vacant storefront, they'd just pass the cost on to the apartment tenants. I think this is a case where you need better carrots, not harder sticks.
So glad you were able to make it out here Diana - SF has lots of work to do, but it does finally seem like the ball is rolling.
The size of the retail space must also be contributing to vacancy. When a big box retailer leaves, a new small business that could replace it will likely need significantly less space, and may not be able to afford even a short term lease if it requires them to pay for space they aren’t using.
Yes, definitely. That was sort of my point about the Ferry Building -- big spaces carved up into smaller ones that are more accommodating to small businesses. Thanks!
This is a great insight, I would love to see something like this done with some of the empty retail spaces here in DC. We have also seen quite a few shocking closures here as business which seemed popular and well-trafficked have shut down after their rent was increased. Your point about wanting a tenant with established cash flow and longer lease terms makes sense, but I find it troubling that commercial rent is going up at the same time we are seeing a significant increase in vacancy.
It's funny you mention DC because I do feel like SF and DC are the two cities that have had the hardest time recovering from the pandemic. Both have a lot of remote work and both have not dropped prices. It will be interesting to see how DC fares with the new administration. I tend to think that the RTO push and layoffs will cancel each other out.