San Francisco Retail Market Begins to Stabilize
San Francisco has been hit by the pandemic, from churn, which triggered a double-digit drop in home rents, to a near-standstill in office rentals due to work from home guidelines. However, retail has managed to gain a foothold. According to Marcus & Millichap statistics for the third quarter, asking rents have increased slightly and asset prices have stabilized.
In the third quarter, asking retail rents rose 0.4% to $ 38 per square foot, according to the study, despite the market’s vacancy rate rising 90 basis points to 6.1%. This was welcome news after retail rents fell 8% during the pandemic last year. The rental growth shows a clear recovery in the asset class. Asset prices were unchanged at just under $ 600 per square foot, but the caps rose slightly to an average of 5%.
While rental growth is a positive sign, net absorption was negative again in the second quarter, mainly thanks to new construction deliveries. Construction is up 0.6% and the market has grown 400,000 square feet this quarter. Fortunately, employment growth is also on an uptrend, with employment up 5.4% representing 56,000 new jobs.
A previous report by Marcus & Millichap forecast a retail vacancy rate of 6% this year in San Francisco, but expected rents drop 2.4% to $ 36.96 and only 3.9% of employment growth. Employment in San Francisco remains “relatively healthy,” according to the study, with the professional and business services sector (including big tech) shedding just 5.3% of jobs due to the recent economic downturn.
While there are some signs of stability, San Francisco continues to lose people to other subways. To According to analysts at Placer.ai, major metropolitan areas like New York City and San Francisco have seen month-on-month declines this year. And in San Francisco in particular, more residents moved to cities like New York, Phoenix, Seattle, and Austin than came from those areas. This could have a significant impact on the retail sector as well as other pillars of commercial real estate such as offices and apartments.
