Nordstrom. Old Navy. Anthropology. H&M. crates and barrels.
Downtown San Francisco has seen a massive exodus of retailers in recent months, and this week decided by the owner of the shopping mall To move away from conspicuous ground. Perhaps more troubling, market analysts say there is still a way to go before the city stops bleeding.
The city has the highest office vacancy rate of any major American city. Asking rents for retail space are down 21% from pre-pandemic levels. And even though tourists are visiting San Francisco again, they spend 77 percent less in the city than they did in 2019.
“I don’t think San Francisco is doing well just yet,” said Vince Tibourne, managing director of real estate firm Green Street. “I think we probably haven’t even hit the bottom yet.”
On Monday, mall owner Westfield announced that it had turned over the Westfield San Francisco Center to a lessor and will decide who will run the facility going forward.
Westfield’s decision to pull out of locations it’s owned since 2002 reflects how long it will take for urban centers across the country to recover and the ability of retailers and mall owners to remain open during that time. raised new questions about
Downtown malls have always been a rare sight because the city center has limited space for large shopping areas. However, these buildings have long relied on a steady flow of locals, office workers, convention-goers and tourists. That math has been upended by the pandemic.
San Francisco’s office market has been hit hardest among major U.S. cities, with office vacancy rates dropping from 4% before the pandemic to about 30%. This has had serious ramifications for sandwich shops, clothing stores and many other retailers.
Colin Yaskochi, an analyst at real estate services firm CBRE, predicted the market wouldn’t bottom out until sometime next year. In an interview, he said the vacancy rate could reach 35%.
Things are very different in downtown San Francisco. A decade and a half ago, during the financial crisis, rents dropped 30%. And in the dot-com market crash at the turn of the century, commercial rents plummeted by as much as 70%. Rents have fallen even more moderately this time around, at about 15%.
Yasukochi said part of the reason is due to what the industry sometimes describes as “extension and pretense.” Banks are reluctant to seize distressed properties because it takes effort to find tenants and they often take over properties at a loss. Instead, they try to make peace with their borrowers and weather the crisis in the hope that the market will turn around.
Would a delay tactic work? “It depends on how long you can pretend,” Yasukochi said.
In many cases, urban retailers have voluntarily opted out. In San Francisco, Nordstrom has announced it will close its longtime store in the San Francisco Center in August, leaving the mall 45% empty. Anthropologie closed its downtown store in May after 20 years of operation.
In New York, Neiman Marcus closed Manhattan’s only Hudson Yards store in July 2020 after bankruptcy, just over a year after its grand opening. Nike closed its Niketown store in downtown Seattle in January, which has been in operation since 1996. Outdoor retailer REI has announced that it will close its downtown Portland store for 20 years as its lease expires early next year.
While downtown foot traffic is slowly recovering, many retailers have not returned to pre-pandemic levels of sales, making it unsustainable to continue paying high rents in prominent downtown cores. there is
Westfield isn’t the first mall owner to pull out of its longstanding downtown shopping center. Last year, Brookfield Property Partners sold Chicago’s Water Tower Place, based in the upmarket Magnificent Mile. The mall has been plagued by declining foot traffic and conspicuous vacancies at retail outlets since the pandemic began. More than half of the space at Water Tower Place is vacant, according to Cushman & Wakefield, including the location of the anchor store that was Macy through 2021.
In 2022, when Maserich sold his 50 percent stake in Shoppes at North Bridge, another mall on the Magnificent Mile, the sale took almost a year. $30 million loss.
Shopping malls in general are in a tough spot. U.S. malls have lost 50 percent of their value since 2016, according to data from advisory firm Green Street. In fact, Westfield’s San Francisco decision is part of a broader strategy by parent company Univile Rodamco Westfield to significantly reduce the number of malls it operates in the country.
But analysts say other factors, including fears of shoplifting, delays in plans to return to offices, and a critical conference economy that has yet to fully return to its pre-pandemic state, are making San Francisco’s retail situation worse. there is
In a statement about its waiver decision, Westfield said the San Francisco Center is unusual compared to other malls. The San Francisco Center saw a 35% drop in sales from 2019 to December 2022. One of the group’s malls near San Jose reported a 66% increase in sales over the same period. Sales across his 18 malls in the US increased by 23%.
When Westfield took over the mall in 2002, San Francisco was emerging from the dot-com collapse.The urban shopping center is his 1.5 million square feet and Westfield has $460 million To the expansion. Back then, homes were being built downtown, and online shopping was still a new concept. The center’s food court has become a hot spot for office workers on their lunch break and a novelty for tourists accustomed to shopping at the stand-alone shops along Market Street. Once inside, there was a large commercial complex with spectacular spiral escalators leading to multiple floors of shops.
“There weren’t really any shopping malls downtown, so it was kind of a new attraction,” said Gabriela Santaniello, founder of retail consultancy A Line Partners, who lived in San Francisco from 2001 to 2007. The business has increased and it has become more lively,” he said. “
It has become part of the fabric of the city. The mayor of the city, London Breed, was seen buying clothes there. Former mayor Willie Brown is a movie theater regular.
Many San Francisco residents fondly recall shopping trips to the top-floor Nordstrom store. San Francisco resident Diane Beaute, who ran an underground cake business for decades, remembers going shopping for household items “anything that looks a little French.” . Wealthy friends who fly from Florida to the city on a private jet make sure to head to Nordstrom to shop for gifts.
Boat hasn’t been to the mall in years, but it’s not because of neighborhood challenges, homelessness or poverty, she calls it “a sad commentary on the times.” But at 87, she’s less interested in amassing her stuff.
“Maybe the demise of some stores has something to do with the fact that people realized they didn’t need that much,” she said of the San Francisco store closures. “People’s interests have changed. How they spend their money has changed.”
Some big retailers like Neiman Marcus and Bloomingdale’s have decided to stay in downtown San Francisco. Bloomingdale’s, owned by Macy’s, which has stores in malls, is “dedicated to providing excellent service” in the San Francisco area, a spokesperson said.
Kazuko Morgan, executive vice chairman of Cushman & Wakefield’s San Francisco office, said the exit would pave the way for retailers struggling to enter San Francisco’s expensive market. The site, which has been occupied for decades, is now open and tenants can ask for concessions, a rarity in San Francisco’s commercial marketplace.
“We’ve told our tenants that this is a buyer’s market,” Morgan said. “In my career, and in doing this for a while, I have never seen such quality real estate available. San Francisco is one of the top cities in the world, but We obviously have some challenges at the moment, but we’ll get through them.Look at how New York has changed.”
