Office-Using Firms Reshaping Retail Landscape

Savvy investors are targeting properties in San Francisco that have expiring leases that can be re-tenanted at higher rents or buildings on hard corners that can be redeveloped.

SAN FRANCISCOSan Francisco boasts one of the strongest retail markets in the country because of robust job growth in high-paying employment sectors and limited construction of retail space. That is according to a recent retail report from Marcus & Millichap. Tech firms continue to ink large deals for available office space in the market at a blistering pace.

According to the report, Salesforce has been the largest catalyst for job growth in the South of Market area and recently agreed to occupy 750,000 square feet in the newly renamed Salesforce Tower. The company is committed to millions of square feet in the area, which will boost retail spending in the once-challenged submarket.

But office-using firms are not alone in reshaping the retail landscape in the metro, the firm says. Multifamily builders are also pushing forward with projects to create additional housing options. At Market and Van Ness, for example, sites on all four corners are in the process of being permitted or sold to make way for thousands of housing units. Retailers will move into the area to support the influx of residents at the intersection that was once nearly void of housing.

On the investment side of the market, retail properties in San Francisco is heated, largely reflecting the strength of the local economy and nearly empty development pipeline, the firm says. Capital preservation plays dominate in the single-tenant sector as foreign money flows into the market. Local buyers are also active, though current pricing makes value creation beyond appreciation challenging. Savvy investors are targeting properties with expiring leases that can be re-tenanted at higher rents or buildings on hard corners that can be redeveloped. Listings with upcoming lease expirations are also favored by multi-tenant investors, though these deals are trickling into the marketplace.

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Office-Using Firms Reshaping Retail Landscape