Future Cities
Retail Markets in Focus: San Francisco
Spotlighting North American retail markets with unique characteristics that attract occupiers and investors.
January 11, 2024 5 Minute Read
Despite its downtown’s well-publicized challenges, the greater San Francisco retail market has undeniable strengths, and its long-term prospects are buoyed by a local economy capable of producing job growth and higher incomes.
Retail Rents are Strong in Most San Francisco Submarkets
Downtown San Francisco retail is beleaguered but showing signs of recovery, and many regional submarkets are thriving. The downtown’s economic rent, calculated as average rent multiplied by occupancy rate, is down 14% from pre-pandemic levels but up 26% year-over-year. Suburban retail submarkets such as South San Francisco and Daly City/Brisbane have shown solid rent growth of over 5% from pre-pandemic levels.
Figure 1: Percent Change of Economic Rents of San Francisco Submarkets, Q3 2019 to Q3 2023
Retail Foot Traffic is Finding New Districts
Foot traffic in San Francisco’s retail districts has declined overall due to remote work, reduced tourism and the perception of crime. But some districts are bucking the trend. Although Union Square’s foot traffic is down 45% from pre-pandemic levels as of October 2023, some of that traffic has migrated to other districts such as the storefronts along Fillmore Avenue, further from the city’s center. Using a six-month rolling average of foot traffic, Fillmore Avenue has seen a 1% gain compared to pre-pandemic levels and 13% year-over-year growth. Even Union Square is beginning to rebound, as new tenants such as Banana Republic, IKEA and Chotto Matte have generated buzz and helped increase the district’s foot traffic by 3% year-over-year.
This overall year-over-year foot traffic rebound may reflect government efforts to improve security. In 2023, the state allocated $267 million to police departments for retail theft investigative units, surveillance technology, training loss-prevention officers and initiatives for increased cooperation between businesses and the community. The Council on Criminal Justice reports that the shoplifting rate has fallen to 22.99 crimes per 100,000 residents as of June 2023, down from a high of 60.34 in November 2021. Meanwhile, although both domestic and international tourism remain below pre-pandemic levels, they are trending up. San Francisco International Airport had 1.61 million domestic arrivals (+6.7% year-over-year) and 606,000 international arrivals (+26.4% year-over-year).
Figure 2: Retail Foot Traffic Trends by District
The San Francisco Bay Area continues to deliver the job growth that underpins retail sales. According to CBRE’s Scoring Tech Talent 2023 report, it has the highest score in North America by a wide margin, calculated by an index of 13 metrics that gauge the competitive advantages of markets and their ability to attract and grow tech talent pools.1 Tech talent jobs have grown by 23% from 2017 to 2022, and the market has the second-highest degree attainment rate at 52.4%. This is a bonus for retail, as the U.S. Bureau of Labor Statistics estimates that 60% of total retail spending is from consumers with a bachelor’s degree or higher. Additionally, the continued rise of AI and its venture funding ecosystem will add more jobs to San Francisco’s tech industry. The region accounts for 55% of AI venture capital funding since 2019, according to CB Insights.
1 Scorecard metrics are further detailed in the report.
Figure 3: Top Five Markets in Tech Talent Scorecard Rank, Americas
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The Dallas-Fort Worth (DFW) metro region’s retail sector has outperformed the U.S. average.
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