California Apparel News

San Francisco’s retail trade has had its share of hits in the past. But the market is rebounding, thanks to a new wave of growth in the technology sector as well as an influx of new retail concepts luring more tourists back to the Bay Area.

Led by the $460 million Westfield San Francisco Centre shopping mall on Market Street, which opened last fall, downtown has also seen new store openings from fast-fashion retailer H&M. Other stores, including Barneys New York, are set to open.

Following the Sept. 11, 2001, terrorist attacks, the area’s retail sector was affected by a steep drop-off in tourism as well as a shake out in the Internet industry.

International tourism has not returned to pre-9/11 days, but the tech sector that slumped steeply a few years ago is returning in different forms.

“It’s kind of like the second generation,” noted Ryan Carmichael, a researcher with the Jones Lang LaSalle real estate company in San Francisco. “The tenants that are coming in now have more realistic business plans, are taking smaller spaces and are not getting too far ahead of themselves.”

Retailer Carmel Rafael of Rafael’s boutiques said the local business is exactly what San Francisco needs right now. “We really need the convention traffic,” he said, noting that his store in the Sheraton Palace Hotel feeds off of out-of-town business traffic.

What may help is the new wave of business tenants migrating to downtown. The Microsoft Corp. recently signed on to take 92,000 square feet at the Westfield Centre office complex, which is adjacent to the shopping mall, both of which are covered by a 100-year-old dome designed by noted architect Albert Pissis. San Francisco State University also took two floors and more than 100,000 square feet for its College of Extended Learning and College of Business.

Beauty giant Sephora took 58,000 square feet of space on Market Street, near its downtown store, where it will have a university of sorts to train staff.

Rising rents

With about 1.3 million square feet of office space leased in San Francisco last year, office-space rents rose 15 percent, according to NAI BT Commercial.

Vacancy rates declined from 12.6 percent to 10.5 percent. Average office-space rates are hovering around $35 per square foot.

“It’s very strong right now. It just hasn’t had a chance to breathe,” Carmichael said.

A number of factors are fueling the growth, said Lynn Sedway of CBRE Consulting in San Francisco.

“A lot of the techies don’t want to live down on the Peninsula, so a lot of the companies are locating their businesses in the city. Plus, you’re seeing companies leasing more space than they may need because they are anticipating further rent growth. We also think the employment figures are running behind actual figures,” she noted.

Real estate brokers have also seen more design companies, architects and graphic-arts companies taking up space along Market Street and the surrounding area.

The Westfield San Francisco Centre is the result of a joint development by Westfield and Cleveland-based Forest City Enterprises, encompassing the former San Francisco Centre mall and the long-vacant Emporium department-store building. The center includes a new 338,000- square-foot Bloomingdale’s, the retailer’s largest store outside of New York; a nine-screen theater complex; and more than 100 new tenants, including apparel retailers such as Los Angeles–based Planet Funk, H&M, Martin + Osa, Forthe & Town, Abercrombie & Fitch’s Ruehl and United Kingdom–based Reiss. The existing section of the center has about 60 tenants.

Despite the mix of new tenants, some have complained that it is not what was advertised. “They promised lots of newness, but it’s mostly the same national chains that are everywhere,” one source said.

The domed complex has been receiving more than 300,000 visitors a week since its grand opening on Sept. 28. What’s interesting, noted Sedway, is that stores such as Nordstrom, located in the old section of the mall, have experienced sales growth since the new section opened.

“We weren’t sure that was going to happen,” she said, adding that sales for the new section have been running ahead of projections. Also, the volume of commuter traffic has helped boost sales. About 30 percent of the center’s visitors arrive via BART trains or municipal lines, which has eased the pressure on parking. Westfield and Forest City spent more than $1 million to improve the Powell Street station for BART, which helped improve access. The center is expecting 25 million annual visitors and $600 million in annual sales. So far, sales are running above projections. In the past, retailers have relied heavily on foreign tourists to keep business lively. Now, they are relying on local tourism and business traffic.

“The Japanese tourists that used to come here [pre 9/11] are, for the most part, not here anymore,” noted Rafael. “But San Francisco is still a mecca, a true destination.”

The center is already nearly full but will welcome new tenants such as Hugo Boss this year. Barneys New York will soon open a 60,000-square-foot flagship nearby on Stockton Street in the building formerly occupied by toy retailer FAO Schwarz. In addition, Urban Realty, which owns three properties on the 900 block of Market Street, is planning a $175 million, mixed-use project featuring housing and retail. Preliminary plans call for a 10-story building with 40,000-square-foot floor plates, which could lure a big-box retailer such as Kohl’s, Wal-Mart or Target, all of which have been targeting urban markets for expansion.