Trends in Northern California Retail Echo Changes Occurring Nationally

Northern California’s retail real estate market is undergoing somewhat of a seismic shift. Traditional shopping centers, such as Serramonte Mall in Daly City and Hillsdale Mall in San Mateo, are seeing name-brand retailers like Payless Shoesource, Gymboree and Charlotte Russe closing stores. This has dictated a recalibration in leasing strategy. , These “prime” retail spaces are often successfully backfilled by business and lifestyle tenants like professional service firms, fitness centers, coffee shops, restaurants and entertainment centers    the sort of businesses that can regain foot traffic.

Ben Lazzareschi, JLL

This trend toward more lifestyle and entertainment tenants    often called experiential retail    can also be seen in the region’s vibrant market for new mixed-use developments. Multifamily communities in San Francisco, Cupertino, Santa Clara and Oakland will be delivered in the coming months. Many of these projects are urban infill, transit-oriented developments, which naturally offer strong street-level retail locations. In this setting, experiential retail works well for apartment residents and local foot traffic. Nearly 6 million square feet of new office has been proposed in downtown San Jose, which is driving strong retail interest from new restaurants and service retail.

Vacancy rates for retail properties throughout the Bay Area have ticked up slightly, now averaging about 3.5 percent. This is up from about 3 percent in mid-2018. The lowest vacancy is in San Francisco, which sits at 3 percent. San Francisco rents are averaging a little more than $42.50 per square foot. Retail rents are the lowest in the North Bay (Marin, Sonoma , Napa and Solano counties) at just under $25 per square foot.

The path to success for any retailer in San Francisco and throughout the Bay Area lies in first understanding the costs of a Bay Area location. Then, it’s understanding the often lengthy timeline in getting a retail store open. Assuming retailers have a concept that is a good fit for the location and are able to deliver a unique offering with a strong product design, the Bay Area should provide ample opportunity for long-term success.

By Ben Lazzareschi, executive vice president, JLL. This article first appeared in the September 2019 issue of Western Real Estate Business magazine. 

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