No one signed up for 2020: San Francisco retailers struggle to survive the pandemic – SF Gate

Walk down the main corridor of any S.F. neighborhood right now and youll see empty windows advertising vacant retail space. An August survey found that only 46% of storefront businesses that were open at the beginning of the pandemic are still operating, according to the San Francisco Chamber of Commerce, and recent data from Zenreach shows traffic at brick-and-mortar locations in the Bay Area was only 38% of whats normal by Sept. 30.

For those that are still in business, from hair salons to bookstores to fitness studios, a landlord willing to negotiate throughout the pandemic could be essential to staying afloat.

Giselle Gyalzen, owner of Rare Device in NoPa, said working with her landlord on rent reductions has been essential since March. She said she feels lucky she wont have to pay back those reductions when the pandemic ends, especially since there is no end in sight. Having to pay back that money when you don't have sales would have been so hard, Gyalzen said. I had a gradually increasing rent through October, but theyve left the conversation open and we talk every few months. There's just so much unknown you can't plan more than a few weeks ahead.

The gift store has been in the location for eight years and she said she hopes to stay in the space long term. While she said her negotiations have been amicable, she knows not all retailers have had this experience. I feel like a few months ago not every landlord was on the same page, but hopefully now they see this is a long-term thing and they'd have a hard time finding new tenants.

Darcie Bell waits at the front door to pick up her online order at Rare Device on Divisadero Street in San Francisco on May 27, 2020.

Balgobind Jaiswal is both a landlord and a store owner in San Francisco, owning four properties on Fillmore Street in Pacific Heights. At his store Cielo Boutique (for which he leases space) sales have only been about 30% of what they were before March, and hes negotiated with his landlord for rent concessions for the remainder of 2020. For the buildings he owns, also on Fillmore Street, hes granted rental adjustments and even let one tenant out of their lease entirely.

He said the luxury retail corridor has been hit especially hard and the current rental prices and vacancies reflect that. He estimates rent is down nearly 10-15% in the neighborhood right now. For his newly vacant space, he said hell likely need to offer a 20% reduction to what his previous tenant paid, but hes had no interest.

Yes, landlords should make concessions, but I think the banks should also make concessions, Jaiswal said. It's the big companies that aren't paying the rent. They have the lawyers.

He has one large international brand as a tenant that has refused to pay rent entirely. He said hes been granted forbearance of his mortgage (the ability to delay payments for a set period of time), but those payments will pile up and still come due eventually with interest, even if he never gets those payments and forgives rent for other tenants. Plus, he still has to pay property taxes and insurance on the spaces.

Jaiswal also has no prospects for the theater he owns, Clay Theatre, which shut down in January after losing money for six years while in operation. The city requires him to lease it to someone who will operate it as a theater, he said, but since theaters remain closed in San Francisco, there are no interested tenants.

Pam Mendelsohn, a broker with Maven Properties, has been busy assisting with rental negotiations since the pandemic began, though most are an ongoing conversation, she said, as the lasting impact of the pandemic remains so uncertain.

She said the pandemic months have otherwise been slow for new retail leasing, but just in the past month shes been fielding more calls from interested parties looking for space. While she said she doesnt think rental prices are down everywhere it depends on the neighborhood and the space she said new construction spaces are down about 20%. Fully built out, ADA-compliant spaces in certain neighborhood corridors may not have dropped the rent at all, whereas a space needing improvement downtown may be more willing to negotiate. Plus, retail varies widely, after all, as tenants like a boutique may be struggling right now, but the bike shop next door is probably doing better than ever before.

She said that while the pandemic has obviously hurt much of the retail sector, for those that do have capital to open a new space, the city permitting has been the biggest hurdle.

One client that wanted to open a store by Christmas wont be able to do so, Mendelsohn said, because they cant get an appointment with the city permitting office until February. She also said that because of the pandemic, it may be time once again for the city to reconsider their formula retail cap, which limits chain retail from operating in San Francisco if they have more than 11 stores globally.

We have a retail crisis right now, Mendelsohn said. If we don't fill our neighborhoods with great retail and great restaurants, people aren't going to want to live here. It's what makes us a world-class city.

Landlord Danny Scher has 10 retail tenants in San Francisco, running the gamut from laundromats to a hair salon to a comic shop. One of his tenants, a small fitness studio, had been thinking about shutting down pre-pandemic. He let them out of their lease once the pandemic was in full swing, but the comic shop next door was doing so well, they expanded their shop into that space.

Scher said hes worked with each of his tenants individually to negotiate whats best for them right now to be able to stay in business. He said hes lucky hes an individual landlord, though, who doesnt have to run his decisions by anyone else.

Credo Beauty on Fillmore Street in San Francisco has signs advertising curbside pickup on May 27, 2020. We had definitely been focused on neighborhoods as part of our strategy, and if there was any doubt in our minds, this has cemented that this is the right approach," said CEO Dawn Dobras.

Dawn Dobras, CEO of Credo Beauty, had planned to open a second San Francisco location in Hayes Valley in 2020. While she said August certainly wasnt the best time to open a new store, the pandemic has supported the companys strategy of opening locations in neighborhoods as opposed to downtown areas. People are living, working, shopping and eating in their community, Dobras said. We had definitely been focused on neighborhoods as part of our strategy, and if there was any doubt in our minds, this has cemented that this is the right approach.

She said both her landlords have been helpful and supportive during the pandemic. No one signed up for 2020, Dobras said. Were a symbiotic relationship. We both need each other to survive.

Julie Taylor, an executive vice president at Colliers International, is optimistic and said often after downturns like this come big booms. I remember after the Loma Prieta earthquake, vacancies were up and down Chestnut Street. Many businesses didnt survive, she said. But what comes after that is all kinds of fresh new concepts, and it's very reinvigorating. This will probably be reinvigorating to Union Square and those neighborhoods with a lot of vacancies.

Mendelsohn agreed, saying that if a store has the financial ability, its a great time to be looking for new space. For the first time, landlords in Union Square are incredibly negotiable, Mendelsohn said. There's space available that hasn't been available in years.

Eleanor Carpenter, owner of Jest Jewels on Union Street, said shed been working toward retirement when the pandemic hit. Shed closed five of six total Bay Area stores and was planning on closing the Union Street store this year. While the pandemic delayed that as she still has a lot of merchandise she wants to sell, she said shes been through enough downturns to know that despite what it feels like now, if you have the right concept, its a great time to take advantage of lower rents with better terms.

Im an old retailer. If I was 20 years younger Id go into business right now because rents are so low you can get the deal of the lifetime with terms of a lifetime, Carpenter said. Merchant to merchant, if you come out with a good concept the people will come in this city. Its time for newness. Enough of the negativity.

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No one signed up for 2020: San Francisco retailers struggle to survive the pandemic - SF Gate