SAN FRANCISCO – neighborhood retailers are the heart and soul of the local communities, creating that unique character that makes them special to residents and visitors alike. Not only are these retailers battling the headwinds from COVID-19, but there are challenges beyond the virus, such as the online rush from Amazon and others, the lengthy approval process from local jurisdictions, and the ever-increasing cost of just opening it of a brick-and-and mortar location.
Hundreds of shops and restaurants in San Francisco and elsewhere have reported closings, with more to come amid the ongoing pandemic. At the same time, some companies show creativity and resilience in finding solutions, and landlords help.
According to retail broker and consultant Maven Commercial, these retailers make lemonade from the lemons of a sour economy. Examples include the opening of Spork and Stix's first brick-and-mortar coffee shop, Il Casaro and Maison Danel changing business plans to accommodate the downturn, and an entrepreneur turning to online magic.
"The vast majority are struggling and we spend a tremendous amount of time advising store owners and landlords on solutions," said Santino DeRose of Maven, who represents retailers and landlords in commercial real estate in the Bay Area, told GlobeSt.com.
A silver lining for many businesses is that there are extremely competitive rental rates and plethora of ready-to-move space in today's marketplace, says Maven.
"Everyone is on the same side of the (negotiating) table these days, finding ways to survive and move forward," adds Pam Mendelsohn of Maven.
Landlords like Veritas Investments have stepped up to help existing tenants and worked quickly to promote new businesses that might take advantage of the opportunities that might arise. Like its hard-working tenants, Veritas has worked a lot of overtime to stabilize tenants and get creative with ideas and solutions.
"We went to our retail tenants immediately because we were all going to get through this together," said Jeff Jerden, COO of Veritas. "We shared the pain. And it is a great mutual benefit when a retailer says they will see the light of day."
Maven and Veritas cited several retailers looking for creative alternatives for further development:
Pivot point: Spork and Stix takes this opportunity to pivot its hugely successful food truck business to take advantage of the vacant retail space at 450 Judah and open its first stationary space in the region. The locally owned and operated company is expanding its Thai and Korean fusion price from mobile to one of the city's most iconic neighborhoods, and is also using the new kitchen for more catering and delivery.
Everyone goes out: Speeding takeaway / pickup is a big story for Il Casaro, one of North Beach's most popular pizza cake experts who has had a stronger dine-in than anything else. The Italian restaurant serves a hungry clientele by simply ordering by phone, internet or “however you want to tell us”.
Simplify: Maison Danel, a French pastry shop that opened to rave reviews a few weeks before the city closed, has maximized its core offerings and offers a reduced selection of must-have pastries and desserts. Customers respond with online orders, take-out and drop-bys.
According to Veritas, many other renters are finding ways to cope with the troubled times. Stores like Barnzu, Woodhouse Fish Co. and Plant Therapy have simplified the offer, also turned it up for take-away or ramped up. The innovative, entertainment-based Café Magic Patio is now offering “Magic Studio” shows with a combination of humor, magical tips and recipes as well as a welcome-back strategy in case things return to normal.
Landlords also had to swing.
While many tenants received financial support from recent federal programs, many did not and everyone needed individual solutions. For example, Veritas found that 25 or more of its tenants received direct funding from the paycheck protection program to cover payroll, rent, and other expenses. About 50 other tenants who did not receive government support received special attention in devising solutions to help them navigate difficult times.
Veritas’s own PPP financing enabled management to dedicate more resources within its management team to assist retailers with lease changes or business planning. For Veritas direct-to-tenant accommodations, strategies typically involved a combination of rent reduction, where part of the rent due and / or deferred rent was given away, breaking the commitment within a mutually agreed period of time or other creative ideas. This action plan was in line with the retailers' own plans and solvency without forcing a large back-end payment or other onerous terms.
The San Francisco retail scene has been rocked by a number of factors, including the coronavirus. Retail vacancy rates are dramatically high, partly due to the empty 6X6 mall on Market Street. This position will be filled in 2021 by an Ikea city concept.
The vacancy rate in San Francisco was 14.4% in the spring versus 14% in the winter. Spring asking rents were $ 42.38, down more than $ 2 per square foot from $ 44.96 in winter, a second-quarter report from Colliers International showed.
Retail property vacancies rose in spring versus winter in the East Bay, San Mateo Counties, and San Francisco, while vacancies in Santa Clara Counties fell. Asking rents for retail space rose in Santa Clara and San Mateo counties, but fell in San Francisco and the East Bay, according to the Colliers report.
The East Bay retail vacancy rate was 8.4% in the spring, up slightly from 8.3% in the winter. The hottest submarkets in East Bay remain Berkeley, Emeryville, and the center of Contra Costa, according to Colliers.