Nordstrom. old Navy. Anthropology. H&M. Crate and Barrel.
San Francisco’s downtown has seen a mass exodus of retailers in recent months, and this week a mall owner decided Walk away from a prime property. Perhaps more troubling, market analysts say the city still has a ways to go before the bleeding stops.
The city has one of the highest office vacancy rates of any major US city. Rent demand for retail spaces has declined by 21 percent before the pandemic. And even though tourists are coming to San Francisco again, the amount of money they spend in the city is down 77 percent compared to 2019.
“I don’t think we’re moving to San Francisco quite yet,” said Vince Tibon, managing director of the real estate firm Green Street. “I would say we probably haven’t reached the bottom yet.”
On Monday, mall owner Westfield said it is turning Westfield San Francisco Center back to its lender, which will decide who will operate the property going forward.
Westfield’s decision to move away from the location it has owned since 2002 raised a new round of questions about how long it will take for city centers across the United States to recover and what retailers and mall owners will need to continue operating in the meantime. have to continue.
Downtown malls have always been a rare sight, with city centers providing limited space for vast shopping areas. But those that have been built have long depended on a steady flow of foot traffic from local residents, office workers, convention-goers and tourists. This math was turned upside down during the pandemic.
The San Francisco office market has been the hardest hit of any major city in the United States, with office vacancy rates rising from 4 percent before the pandemic to nearly 30 percent. This has had serious implications for sandwich shops, clothing stores and many other merchants.
Colin Yasukouchi, an analyst at real estate services company CBRE, predicted that the market would not bottom out until sometime next year. Vacancies, he said in an interview, could reach 35 percent.
In San Francisco, the situation in the city has been quite different from the previous ones. Rents fell by 30 per cent during the financial crisis a decade and a half ago. And during the dot-com market downturn at the beginning of the century, commercial rents dropped by 70 percent. This time, the drop in fares has been much more modest, around 15 per cent.
Mr Yasukouchi said this was partly due to what he described as “expansion and pretense” in the industry. Banks are reluctant to foreclose on non-performing properties because of the commitment required to find tenants and because they will often be taking the property at a loss. Instead, they hold on to housing with their borrowers and try to wait out the crisis in the hope that the market will turn around.
Will the delay strategy work? “It depends how long you can pretend,” Mr. Yasukochi said.
In many cases, retailers in urban centers are choosing to leave voluntarily. In San Francisco, Nordstrom said it will close its old store at San Francisco Center in August, leaving the mall 45 percent empty. Anthropologie closed its downtown location in May after two decades.
In New York, Neiman Marcus closed its Hudson Yards store – its only one in Manhattan – in July 2020, following bankruptcy and a little more than a year after its grand opening. In downtown Seattle, Nike closed the Niketown store in January, which had operated since 1996. Outdoor retailer REI said it will close its store in downtown Portland for two decades when its lease expires early next year.
Foot traffic downtown is slowly recovering, but sales have not returned to pre-pandemic levels for many retailers, making it impossible to continue paying high rents in key downtown centers.
Westfield isn’t the first mall owner to decide to leave the longtime downtown shopping center. Last year, Brookfield Property Partners abandoned Chicago’s Water Tower Place, the mall that fronts the Magnificent Mile, an upscale commercial district. The shopping district had been struggling with lower foot traffic and noticeable retail vacancies since the start of the pandemic. More than half of the space at Water Tower Place is vacant, according to Cushman & Wakefield, including the anchor store space that Macy’s had until 2021.
In 2022, when Macerich sells its 50 percent stake in another mall on the Magnificent Mile – The Shops at North Bridge $30 million loss,
Malls, in general, are in a tough spot. Since 2016, malls in the United States have lost 50 percent of their value, according to data from consulting firm Green Street. In fact, Westfield’s decision to move to San Francisco is part of a broader strategy by its parent company, Unibel-Rodamco-Westfield, to greatly reduce the number of malls it operates in the country.
But analysts say retail conditions in San Francisco have been depleted by other factors such as shoplifting concerns, slow return-to-office plans and the vital convention economy that has not yet fully returned to where it was before the pandemic. .
In its statement regarding its decision to relinquish its ownership, Westfield stated that San Francisco Center was different from its other malls. In the San Francisco Center, sales fell 35 percent from 2019 to December 2022. At one of the group’s malls in nearby San Jose, it said, sales increased 66 percent during the same period. Sales in its 18 US malls grew 23 percent.
When Westfield acquired the mall in 2002, San Francisco was emerging from the dot-com crash. The urban shopping center was 1.5 million square feet, and inserted Westfield. $460 million in a detail. At the time, residential housing was being built in the city and online shopping was still a new concept. The centre’s food court became an attraction for office workers during lunch breaks, and a novelty for tourists who were accustomed to shopping at roadside shops along Market Street. Inside, they met an emporium with grand spiraling escalators that transported them to several floors filled with stores.
“It was like a new attraction because there really was no mall downtown,” said Gabriela Santaniello, founder of retail consultancy A Line Partners, who lived in San Francisco from 2001 to 2007. “It was much more alive with retail.”
It became part of the fabric of the city. The city’s mayor, London Breed, can be seen buying clothes there. Willie Brown, the former mayor, is a regular at the movie theater.
Many San Franciscans fondly remember shopping trips to the Nordstrom stores on the upper floors. San Francisco resident Diane Botte, who’s had an underground cake business for decades, remembers buying housewares—”anything that might seem a little bit French.” A rich dude who flew into town from Florida on a private jet would talk about going to Nordstrom to shop for gifts.
Ms Bote hasn’t been at the mall for years – not because of the neighborhood’s challenges, homelessness and destruction, which she calls a “sad comment on the timing”. But at the age of 87, he is less interested in hoarding things.
“Maybe some of the stores closing have to do with the fact that people realized they didn’t need as much stuff,” she said of the closing of stores in San Francisco. “People’s interests have changed – how they want to spend their money has changed.”
Some big-name retailers like Neiman Marcus and Bloomingdale’s are deciding to stay in downtown San Francisco. A spokeswoman said Bloomingdale’s, which has a store in the mall and is owned by Macy’s, is “dedicated to providing exceptional service” to the San Francisco area.
Kazuko Morgan, executive vice president of Cushman & Wakefield’s San Francisco office, said the exit clears the field for retailers who would have struggled to enter San Francisco’s expensive market. Spaces occupied for decades are now open and tenants can ask for concessions, which is a rarity in San Francisco’s commercial market.
“We have told the tenants that this is a buyer’s market,” Ms. Morgan said. “Never in my career – and I’ve been doing this for some time – have we seen this type of quality real estate available. San Francisco is one of the top global cities and obviously there are some challenges at the moment. But We’ll get through this. Look how New York has changed.