Is SF’s Valencia St Too Expensive for Its Own Good?

With the exit of Chocolatier Blue Parlor at a site going for $10 a square foot and the appearance of other empty storefronts, it’s beginning to seem to some that Valencia Street has become unsustainable for the independent artisans that it has long attracted.

Instead, the street has started to attract retailers and restaurants that are not chains — a formula retail law ensures that any business with more than 11 locations must get a special permit — but already have several locations. They aren’t homegrown in the Mission, but imported from elsewhere in San Francisco or the world.

These include the more recent stores to open — Chrome, DSPTCH, Balm and Veo Optics.

For some of those long on the street, higher rents are changing its once special vibe.

“I have friends who don’t walk down Valencia Street because they don’t recognize it anymore,” said Dema Grim, owner of Dema, a vintage clothing boutique that she has operated on Valencia Street for 18 years. “I’m not even sure that I fit in anymore as a unique business owner – I just don’t think that the customer for what I do is still in the city.”

An extremely low retail vacancy rate throughout the city’s commercial districts has put pressure on several commercial spaces throughout the city. But making the rent — even when the product would be considered expensive by many — is not always easy.

The $10 a square foot for 500 square feet that Chocolatier Blue Parlor left behind is more than double the $2 to $4 per square foot that business owners paid in 2009 and considerably higher than the $5 to $7 a square foot leases of 2014 or the $6 to $8 per square foot many businesses are paying now.

The location at 904 Valencia Street was the highest per square foot retail space in the street’s history, according to Jefferson McCarley, general manager of the Mission Bicycle Company and spokesperson for the Valencia Corridor Merchants Associations (VCMA). McCarley, though acknowledging that rent increases are inevitable, describes this pricing as ‘vulgar.’

“I would say that is not normal – that rental is not market-rate,” said McCarley, who was shocked when the chocolate manufacturer first approached him, willing to pay up. “I asked them how they expected to do business like that. It was insane.”

And unsustainable. After 16 months, the chocolate shop is now closed.

Fighting to keep Valencia Street independent

In an effort to keep rents relatively reasonable and to preserve Valencia Street’s artsy, independent character, McCarley and other merchants members of the VCMA have fought hard to keep formula retail, or chain stores, out. The latter require a conditional use permit and a public hearing before being able to settle into the corridor.

Jack Spade, American Apparel and Aesop all failed to win the community’s approval or backed out before even trying.

But even without chain stores easily moving in, recent tenants remain decidedly more upscale than many of the longterm shops. It’s unclear how much the Italian automaker Pagani is paying for the lease at 461 Valencia Street — a lease it is expected to leave because of the cost of upgrading the space. Nevertheless, it is the sort of retailer — one that makes cars that sell for more than $1 million a piece — that can afford the corridor.

It is still uncertain who will move into the 904 Valencia Street space Chocolatier Blue left, but developer Chris Homs said that his firm, Lockehouse Realtors, is looking for “an exciting, retail apparel-type tenant — someone that adds to the neighborhood.”

The adjacent space at 908 Valencia Street, which was also acquired by Chocolatier Blue and currently stands empty, will temporarily serve as a pop-up for L.A.-based designer label Skingraft. Online, it sells hoodies for $345 and $408 (on sale), prices that are steeper than those of old-line businesses like Dema.

How much an independent business can realistically afford to pay is unclear. And some of those are already gone. Julia Trujillo,  the manager of Aldea Home on Valencia Street, said a rent increase at its children’s store on Valencia means it will  soon reconfigure the space at 890 to include Aldea Niños.

Luna Park, a popular restaurant located at 694 Valencia Street, along with the Lexington Club at 19th and Valencia Streets — a well-known Lesbian bar with nearly two decades of history in the community — was recently bought by Gavin Newsom’s PlumpJack Group. The firm could not be reached for comment about the acquisition.

While the PlumpJack Group is headquartered in San Francisco, it operates more than a dozen wineries, luxury resorts, restaurants and retail establishments throughout the state, as well as a development company.

On the same block, the Elbo Room will be converted into condos by the building’s owners once the lease expires in November. Immediately next door, a 2,000 square foot space at 657 Valencia has been sitting empty for years.

“I’ve had that listing forever,” said real estate broker Mark Kaplan. An organic grocery store had signed a lease in 2012, but the building’s owner opted to build condos instead. “It’s a waste – the grocery store would have been an important resource to the community,” said Kaplan.

McCarley said the changes are just a sign of the times and the city’s heated economy.

“The normal person can’t afford to live anywhere in the city — that’s not unique to the Mission. But the change is really pronounced here on Valencia Street,” he said. “I think that there is still a lot of soul here, and that it’s still the most interesting neighborhood in the world. We take action by doing what we can to preserve the character of the neighborhood.”

There are few places as soulful as Laku at 1089 Valencia.

Amidst mountains of yarn, Yaeko Yamashita sits next to a sewing machine at the back of her boutique, pensively overlooking embellished hats, colorful fabrics that resemble art, and shelves lined with vintage jewelry — some of the unique creations that fill her handmade haven.

Classical music plays in the background, but the store she settled into in 1993 is devoid of customers. More than two decades later, Yamashita notes the changes that the commercial corridor has experienced.

“I used to have relationships with my longtime customers — but with the new people, I don’t really have that,” now, she said.

Silicon Valley and the nation’s highest job-market has meant an influx of young, affluent residents with little attachment to the neighborhood. Yamashita said they often overlook her little store.

“There are more people in the area — but it doesn’t make a big difference in business. People come but they don’t buy. It’s a different kind of customer now,” said Yamashita, with a defeated smile. “Commercial things make money, but stuff like this… People are not interested in handmade products. They come and want to spend money, but they don’t appreciate specialities. It makes me very tired.”

Despite hard times, Yamashita considers herself “lucky.” Her five-year lease is up for renewal next year, and she is looking at an increase that will peg her rent at $3,500. For a space on Valencia Street that spans approximately 1,000 square feet, that is cheap.

Just a block over from Laku, Jose and Arturo Ibarra are scrambling to tend to the needs of their customers. A pale-ish yellow sign that advertises the printing business, Ibarra Brothers Printing Services, may easily go unnoticed among the street’s vibrant and creative new storefronts.

“The problems is with the rents,” said Jose Ibarra, explaining that they have been operating out of their 22nd and Valencia Street location for more than 20 years. “The owner of the building can raise our rent however he wants, and unfortunately we have no other options at the moment but to pay.”

The Ibarra brothers renewed their five-year lease last month, and were shocked to find that their rent had tripled —from $3,000 to $9,000 per month.

“That was big for us – especially because people don’t come to this street for printing. They are here to shop and have fun,” said Jose. “Now we work extra hours because we have employees to pay, we have bills. Luckily, we always treated our customers as our friends, and we have regulars that come back.”

For survival, business owners should understand what the market wants

On the other end of Valencia Street, ‘space jackets’ that cost $265.50 and ‘dress pant’ yoga pants for $78 line the racks of the warehouse-style Betabrand store — an online crowd-funded clothing store that moved onto the corridor in the summer of 2013.

“Products with a story behind them are a conversation starter, and that alone can lead to people becoming interested in a product,” said Harrison Roberts, who works for the company. “We never want to be high-end or intimidating… As soon as you start to bring in that exclusion factor, you see the divide between customer base and who lives here.”

Businesses, no matter how small, can survive with the right product, according to Philip Lesser, a business consultant and president of the Mission Merchants Association.

He believes that the future of Valencia Street businesses – new and old – depends on their adaptability and the ability to move forward and evolve with the customer.

“There are more opportunities than ever with all the social marketing and being able to reach people. Even little businesses now can make themselves seem so much bigger than they ever could before,” said Lesser. “It’s about being able to use the tools that are at your disposal, being able to correctly gauge what the market wants, and then being able to provide those goods and services.”