Retail vacancies in San Francisco hit a new record in the second quarter

Retail vacancies in San Francisco hit a new record in the second quarter of the year, with empty space hitting another peak around the marquee Union Square shopping district, according to Cushman & Wakefield, the real estate firm.

The trend continued even as some commercial centers in San Francisco neighborhoods and neighboring Bay Area markets have done relatively well, experts said.

Citywide, the retail vacancy rate rose to 7.7% for the second quarter, up from 7.5% in the previous quarter, according to Cushman & Wakefield’s report. The firm adjusted its first quarter estimation downward slightly from an earlier report , but a senior research director said the first quarter had still set a record.

The overall vacancy rate around Union Square — where numerous stores have closed since the pandemic — was 21.7% in the second quarter, up from 20.6% in the prior quarter, the latest report said.

The Union Square number did not include the massive, half-empty Emporium Centre San Francisco on Market Street near Union Square, which is in receivership after its previous operator said last summer it would surrender the property to its lender.

“There's more space than we've ever had available ever in my career,” said Kazuko Morgan, a Cushman & Wakefield executive vice chairman based in San Francisco.

Before the COVID-19 pandemic arrived in early 2020, the retail-vacancy rate in San Francisco was one of the lowest among all major cities in the nation, ending the fourth quarter of 2019 at 3.5%, according to an earlier Cushman & Wakefield report.

Since that time, companies have embraced remote work to varying degrees and many employees routinely do not come to offices downtown to do their jobs, with office-vacancy rates hitting record highs and retail and other businesses suffering as a result. Increased online shopping has also been credited as a major influence in the changed fortunes of some retailers.

Most Bay Area markets and San Francisco neighborhoods are doing well apart from downtown San Francisco and Union Square, according to Avison Young.

“When we talk about the suburban areas and outside of the Financial District and Union Square, most of that is performing extremely well,” said Cameron Baird, a senior vice president at Avison Young, who said it is often difficult to find good sites for many companies seeking space.

Some suburban and neighborhood commercial districts are actually doing better than before the pandemic with increased patronage from people now working remotely, he said.

Some other tourism-focused businesses have also fared relatively well, perhaps reflecting negative perceptions about the Union Square area that need to be changed, Baird said. He cited several businesses in Fisherman’s Wharf where sales have been at or above those posted in 2019.

While some luxury retailers are prospering around Union Square , Baird said more rents may have to decline to fill much of the vacant space, a dynamic also playing out with office space downtown. Already, some deals are getting done at 20% to 40% off pre pandemic prices, he said.

“Union Square is going to take a little time to figure itself out,” Baird said.

Morgan said she sees signs things are turning around, though the numbers may not show it until next year.

“There's a fair amount of deals that are under negotiation, and the touring activity all across the board has definitely picked up,” Morgan said. “I think the overall sentiment is San Francisco's kind of hit rock bottom.”

Baird said the Emporium Centre is a big opportunity for someone to buy at a discounted price and put in some innovative attractions, like indoor golfing and other experiential activities, to bring traffic. The mall generated healthy sales before the pandemic, he said.

“Will it become a soccer stadium? I don't think so,” Baird said, referring to an idea that Mayor London Breed floated in 2023 but which has not materialized.

Despite the increase in the retail-vacancy rate, both real-estate firms found positive developments to highlight, like watch seller Breitling opening a new store on Union Square and Nintendo announcing that it would open a flagship store in the area.

There was also a flurry of new cafés and restaurant openings, including the Saluhall food hall connected to the IKEA store that opened at 945 Market St., Osha Thai at 250 Montgomery St., Avotoasty at 101 California St. and Lunette in the Ferry Building.

Last month, a celebrated chef opened Le Parc Bistrobar , a French restaurant, in a hotel in downtown San Francisco near Union Square. The Spanish restaurant Bellota in SoMa, however, notified the state that it would be closing.

The plight of downtown, meanwhile, has emerged as an issue in the current mayor’s race.

Mayor Breed, who has pushed for more housing downtown and touted the area’s potential as a nightlife and entertainment destination, got about $15 million in The City’s new budget for revitalization initiatives downtown and in other parts of The City, including $1 million for Union Square Park activations.

Board of Supervisors President Aaron Peskin, who is running against Breed, pushed to get $2.7 million of that funding earmarked for arts and entertainment activities across the greater downtown.

Peskin this week also announced legislation to create a permit program to make it easier to stage such events in a dozen locations that would qualify to be entertainment zones, like the newly created one on Front Street , which is the first in the state and Breed championed using a law authored by state Sen. Scott Wiener to enable people at events to consume alcoholic drinks outdoors.

Former interim Mayor Mark Farrell, who is running for the position, is also pushing a downtown plan that, among other things, calls for tax incentives to spur entertainment activities and reward employers who mandate that employees come into offices at least four days a week.