Salaries in San Francisco are higher than just about anywhere else in the U.S., and the Bay Area’s economy is one of the nation’s fastest-growing. Overpaid tech workers compete to live in high-rise apartments that didn’t even exist a few years ago.
So with all this happy commerce, why do some parts of San Francisco look like ghost towns?
In some neighborhoods, storefronts sit vacant for years. A single block of Balboa Street in the Richmond District, a stretch of apartment buildings and single-family homes along the northern length of Golden Gate Park, has at least a half-dozen empty storefronts — and one of those has been vacant for almost a decade. Market Street has dozens of empty spaces. And in the city’s storied Castro District, dozens of empty shops are gathering dust on streets bustling with foot traffic. A prime location on Castro Street finally reopened earlier this year as the drag restaurant Hamburger Mary’s — after being vacant for 19 years.
The city’s overall vacancy rate is relatively low, at 3.3 percent. But in certain neighborhoods, such as the Castro, the vacancy rate routinely hovers above 10 percent, according to surveys — despite the booming economy.
The biggest culprit behind all this retail blight, not surprisingly, is changing consumer habits: Online purchases now account for roughly 10 percent of all shopping in the U.S., and there’s no turning back. That’s bad news for brick and morter retailers.
But the Amazon generation is only part of the story. San Francisco’s retail blight can also be blamed on high rents, lax government enforcement, a cumbersome permitting process and a general wariness of large retail chains. Throw in some greedy landlords — many of them out-of-towners who rarely set foot in the neighborhoods — and it’s the perfect storm for retail vacancies.
Nearly every neighborhood with a vacancy problem seems to have at least one villainous property owner to blame it on, a landlord in no hurry to get locked into 10- or 20-year leases when rents are still rising. Other owners don’t seem to want the hassle of being a landlord when they can enjoy property appreciation and tax write-offs in one of the hottest markets in the nation. San Francisco landlords are required to pay a $711 annual fee on properties vacant more than 30 days, but that ordinance is rarely enforced unless someone complains.
For retailers in the Castro, where rents range from $5,000 to $50,000 a month, the abundance of empty storefronts makes it more difficult for surrounding retailers to make money, says Daniel Bergerac, president of the neighborhood association, Castro Merchants, and owner of a dog-grooming business called Mudpuppy’s.
Bergerac and others would like to see the city impose a stiff tax on vacant properties, but so far that’s just talk, and it’s too early to know how much of a priority the city’s blight problem will be for San Francisco’s new mayor, London Breed. Washington, D.C., already collects such a tax, and New York Mayor Bill De Blasio is looking into doing the same.
Meanwhile, every district in San Francisco has its own set of rules and its own neighborhood associations — often multiple ones. In the Castro, a prospective tenant needs to win approval from three such groups, according to Bergerac, and chain stores with more than 13 locations, known as “formula retailers,” must get special approval. The city also places special restrictions on changing the type of business at a location, meaning, for instance, that it’s hard to put a restaurant where a hair salon used to be.
The purpose of all this is to help neighborhoods keep their unique character and at the same time maintain a balanced assortment of services — but it makes for a painful process. Bergerac would like to make it easier for formula retailers to move into certain neighborhoods, though there’s no guarantee they’ll succeed once they do. The Castro groups recently nixed an application for a new bank branch in the neighborhood (“We’ve got plenty of banks in the Castro,” he said), but allowed fitness chain SoulCycle to move in. And in an unusual move, the neighborhood groups approved a CVS on Market Street in 2014 after a lengthy process, but quickly discovered it was a bad match. The CVS closed after less than three years.
Sarah Bacon, who owns Nourish, a small vegan cafe in the Inner Richmond, said it took her 10 months to get through the reams of red tape and finally open her business, during which time she paid full rent every month. Because the 1908 building had most recently been an antiques store, Bacon had to navigate the city’s “change of use” regulations. It turned out to be worth it: Nourish is a big success, bringing a unique dining option to a neighborhood of pizza parlors and dim sum restaurants. But Bacon says if she had to do it over, she wouldn’t. “The pathway to opening a restaurant in a space that wasn’t already a restaurant is incredibly cumbersome,” she says.
Vas Kiniris, executive administrator of the San Francisco Council District of Merchant Associations, a consortium of local retail groups, says high rents and competition from online stores are the new reality in San Francisco, but they’re not the only challenge, and small business owners have to adjust. Until this past spring, he owned Zinc Details, a design store on posh Fillmore Street, which boasts some of the highest rents in the city. Today, Kiniris helps area merchants navigate the challenging environment. He believes the solution lies in a “holistic” approach, involving not only faster permitting but also clean streets, safe neighborhoods and better parking.
Earlier this year, two San Francisco city supervisors announced a pilot program aimed at streamlining the permitting process for new businesses. “With the process as it is today, small business owners often spend thousands of dollars to rent an empty space while waiting for city approvals,” Supervisor Katy Tang said when she announced the program in May. And after hearing that the Department of Building Inspection found no vacancies in her district, Richmond District Supervisor Sandra Lee Fewer launched #Fewervacancies, an effort to mobilize local residents to count empty storefronts. So far, Fewer’s office has received reports of more than 150. The next step is to help the city identify landlords whose properties have been sitting vacant for 10 or more years, and then go after them.
At the very least, Tang, Fewer and others are hoping to hold owners of vacant properties more accountable. But right now, their options are limited. Says Chelsea Boilard, an aide to Fewer: “While we’d like to tell property owners what they can do with their properties, we can’t.”