REAL ESTATE

Report: San Francisco has lowest retail vacancy rate in the U.S.

BY Marianne Wilson

New York — Prospects for stellar rent growth and low vacancy helped make San Francisco the top-ranked city, followed by New York, in Marcus & Millichap’s 2015 National Retail Index, an annual real estate ranking of 46 major U.S. markets. Rounding out the top five: San Jose (#3); Austin (#4) and San Diego (#5).

San Francisco’s retail market will benefit from strong tenant demand and minimal construction, resulting in the lowest vacancy rate in the country by nearly 100 basis points, according to the report. The imbalance between retail inventory and number of residents in the city will widen further as developers focus on apartment and office towers with minimal ground-floor retail offerings.

The report notes that thousands of Class A apartments are coming online in the city, attracting well-paid technology workers.

“The South of Market area, where Salesforce is hiring thousands of workers through 2017 to fill space at a new skyscraper, will be a hotbed for the next few years,” the report said. “Another emerging area is the intersection of Van Ness and Market. The once-overlooked spot will house hundreds of apartments on each of its four corners. Overall, extremely low vacancy will facilitate impressive rent gains, securing San Francisco’s position as the strongest retail market in the nation.’

In other highlights:

• Dynamic retail conditions carry into 2015 with net absorption of nearly 88 million sq. ft. outpacing still-modest additions to supply. Vacancy is forecast to decline another 60 basis points to 6.0%.

• Scarcity of quality retail space for chain retailers has resulted in creative redevelopment of select urban storefronts, reconfigured in-line and end-cap space, and repurposing of functionally obsolete buildings, according to the report.

• Retailers absorbed nearly 75 million sq. ft. in 2014, eclipsing the nearly 40 million sq. ft. of new space delivered and resulting in a 2.2% gain in asking rents, according to the report.

Here are the top 10 markets in the report:

#1: San Francisco
#2: New York
#3: San Jose
#4: Austin
#5: San Diego
#6: Houston
#7: Denver
#8: Orange County (CA)
#9: Seattle-Tacome
#10: Los Angeles

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