What City Officials Do Not Understand About Neighborhood Retail

Dec 13, 2021

There are been all kinds of discussion about the current state of retail in our neighborhoods. Today in NC zoning (Neighborhood Commercial), there are over 340 spaces currently vacant. The toll on our neighborhoods is becoming beyond noticeable. If you look at neighborhoods like  the Mission, there are now blocks of vacant spaces, outnumbering the operating retail stores.

The impact on our neighborhoods is devastating. Everything from graffiti, homeless problems and general lack of cleanliness are all apparent in our neighborhoods.  In simple terms, we are now experiencing blight.

Some of our city officials believe the problem lies with landlords and real estate brokers who are demanding high rent or are overseas buyers who are not seeking tenants, but rather are “parking” money in the United States.  Broker, landlords, and tenants will blame the government red tape and the time it takes in securing the necessary permits. Others will say the problem is related to the high cost of tenant improvements and the risk of potential failure in opening a new business. Finally, others blame online retail, and changing buying habits of Millennials.

All the above certainly attribute to the problem the so far and no one is discussing the number one reason that is causing such a high vacancy in our neighborhood retail – and that is our low unemployment rate.

Historically, we have experienced our lowest retail vacancy rates when employment is high– not low. People go into business for themselves when they can’t find work.

Most of our retail is old, small “mom and pop” shops that opened between the 1930’s – 1960’s. During the 1930’s, we were faced with a depression. There were no jobs, so people opened up shops to make a living.  After World War II, the soldiers that came home from the war and no jobs available to them, so they open the small neighborhood markets, liquor store, 5 and dime stores and restaurants. When Asians fearing the transfer of Hong Kong to the Chinese starting in the 1970’s began moving to San Francisco and opening up shops in vacant stores that became available when the previous merchant saw their kids no interested in their businesses and were able to get jobs in the marketplace.

Today with our low employment rate, there is a very small pool of potential local tenants that would want to risk opening their own business when they can easily get a secure job with benefits instead.  Furthermore, with a $117K “low income” threshold,  small store owners have very little chance of making enough money to survive.

What we need to solve our current retail problems is to introduce developers, business leaders, and real estate brokers into the decision-making process at City Hall.  Unfortunately, we do not have a single member of the Board of Supervisors (nor our own Mayor) who has been in the business world.  The proposed vacancy tax is an example of that lack of knowledge. The Supervisors haven’t reached out to garner any input from the real estate brokers who walk the streets every day, the landlords who own the buildings, or the tenants running their business. They can all speak to the challenges and possible solutions to solve the problems.

We have developed a wall between our city officials and businesses where neither party trusts the other, therefore true dialog and the willingness to work on real plans to figure out a long-term strategy is not happening.

Last year, the city paid a consulting firm to put together a report on the current state of retail in San Francisco and. The report was presented at a public hearing to the board of supervisors. I attended the hearing and to my knowledge, the study did not take into account the opinions from members of the commercial real estate brokerage community or business leaders. Rather, it was a report that directed all of the ills of retail on greedy landlords and brokers.  This is simply not true — and if we continue to put our head in the sand as a city to the real reasons as to why we are experiencing high vacancies in retail – then we are going to  continue to see our neighborhoods decline instead of seeing a revival.

Written by: Hans Hansson

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Hans Hansson is President of Starboard Commercial Real Estate. Hans has been an active broker for over 35 years in the San Francisco Bay Area and specializes in office leasing and investments. If you have any questions or comments please email [email protected] or call him at (415) 765-6897. You may also check out his website, https://www.hanshansson.com