The total number of vacancies on the Valencia corridor between Cesar Chavez Street and Duboce Avenue — a whopping 20 — is greater than it was during the Great Recession in 2009, Mission Local found. Back then, 11 vacancies were for rent.
But today’s unfolding scene of Valencia vacancies differs from the economic collapse of nearly a decade ago, according to commercial real estate agents on the corridor. Delta variant permitting, they expect the market to return — and already, some high-interest spots are getting scooped up.
Unlike 2008, the pandemic’s financial losses aren’t pushed by the same economic drivers. Banks in 2008 were failing and those bailed out were reluctant to give out loans. This time around, that’s not the case.
“What’s different this time is there is a ton of money out there. They don’t know what to do with it,” said Louis Cornejo, a broker with Urban Group Real Estate. Moreover, entrepreneurs “aren’t reluctant to do business, they just don’t know about the timing. They don’t want to get stuck with another shutdown.”
To be sure, a multitude of Valencia storefronts and restaurants closed during the pandemic — nearly a dozen by our count — but the money markets remain flush. An uptick in leasing at the start of the year has slowed with the ascent of the Delta variant, but most observers expect business will pick up when the surge drops off.
Citywide, the office market is also showing signs of life. As of the second quarter of 2021, San Francisco’s office vacancy topped 20 percent, “the highest it has been since 2003 after the dot-com bust,” according to a report by Jones Lang LaSalle Inc., a commercial real estate company that has conducted analysis about San Francisco office leasing at the city’s behest.
Nonetheless, the report also suggests a glimmer of hope: “leasing activity begins to rebound as occupancy restrictions are lifted.”
Local retail brokers agree. No one is confidently saying that the commercial market is full-fledged right now, said Mark Kaplan, the managing broker at Rockwell Properties. (Full disclosure: Mission Local rents from Rockwell Properties.) However, he and others say they’ve seen an uptick of activity.
“It’s picking up,” said Kaplan. “I did seven deals in July.”
Cornejo agreed. “From a broker’s point of view, it’s a really good market. We get busy.”
Case in point: Mission Local discovered a “For Lease” sign at 1398 Valencia St., by 25th Street. Despite the sign, the space was bustling with people inside. “This is no longer vacant,” a woman explained. “Do we have to take the sign down ourselves?” she asked while tugging at it unsuccessfully. A neighbor confirmed it used to be Salgado & Associates P.A. Law firm, and looks like it’ll be a grocery store soon.
With curtains drawn and no light peeking through, the erstwhile site of Muddy’s Coffee House for the past 27 years appeared empty. A few days later, however, a propped-open door revealed work being done at 1304 Valencia St. near 24th Street — and revealed a set of barber chairs. The new owner, Nicole, told Mission Local thatnthe makeover will result in a hair salon doubling as a haircut education center.
Other vacancies are garnering a lot of attention in the past few weeks. R & A Laundrette shut down in January of this year and decamped from 1264 Valencia St., between 23rd and 24th Streets. For now, agents are searching for renters and the realtor told Mission Local an offer was placed just last week.
Cornejo, a broker, said that prime restaurant-like spaces spur multiple offers; for some, he said, he receives three interested calls a day.
Azalea Boutique shut down its 956 Valencia St. location in May 2020. However, an undisclosed business filled the property and contractors began construction in August. Other businesses, such as HUF on 968 Valencia St. and Sisters Coffee Shop on 920 Valencia St., had just moved in by August as well.
Deals, deals, deals
Brokers believe the swell in leasing has been helped by discounted prices on commercial spaces and eager buyers who hope to cash in before pre-Covid-19 prices return.
“There’s a lot more flexibility on both sides,” said Andrew Kraft, a realtor at Blatteis Realty Co. “There are people now who are looking for deals, and owners are giving more concessions than in the past.”
Commercial rents aren’t bound by rent increases, causing some realtors to create “structured leases.” For example, a business signs a lease for five years, and pays a deeply discounted rent for the first two. After that, the tenant agrees to pay market-rate rent.
Pre-covid, small Valencia locations could go for as much as $5 to $7 per square foot, with some entrepreneurs willing to pay loads more. At present, business owners are negotiating down to $3.50 to $4.50 a square foot, which realtors readily take. “Landlords have also settled into the reality of, ‘Okay, I’m not going to keep it empty forever,’” Kaplan said.
Cornejo said that, within the past three or four months, his group “must have done a considerable amount of leasing. Then Delta happened, and everyone is cautious.”
Hesitancy is common among conservative buyers, such as a potential pottery studio that shied away from a space Kaplan advertised after its owner decided that the move was too precarious.
However, as society accepts the new normal and San Franciscans report high vaccination numbers, it’s unclear whether covid will continue to impact the market, Kaplan said. Other positive factors, such as a boost in employment, paints a hopeful scene for commercial rents. “I think they were just waiting to see what was going to happen with the economy,” he said. “People just suddenly decided, ‘Okay, this is the new reality. Let’s go.’”
Taking advantage of record-low rents incentivized some. Silver Sprocket, a comic book shop, left 1038 Valencia St., which remains vacant. But the shop moved a few doors down, to 1018 Valencia St. Its new home allows much more space, and the opportunity to provide classes.
“If you are pretty sure the economy is going to recover, you can lock in a slightly lower rent now than, say, in a year, when everyone else gets on the bandwagon,” Kaplan said.
Some brokers, such as Kaplan, placed bets on businesses during the pandemic that ended up flourishing, such as the plant store Romy Flower Shop at 714 Valencia St.
He embraced optimism, citing how some described riskier business ventures as “lemmings” ready to jump in. “If you are trying to be the lemming, then at some point it’s just human nature. Everyone’s going to follow.”
Lydia Chávez contributed reporting to this article.
It’s very odd to talk only to realtors – they have a vested interest in pumping up the market. I’d be curious what disinterested observers would have to say, though I guess finding an economist might not be as easy as calling up Rockwell. Valencia does not exist in a vacuum. Storefronts are vacant all over the city. Between that and empty offices (you write that there are “signs of life,” but note only a plateauing of vacancies), commercial real estate looks to me (not an expert) like it is imploding. I wonder what affect this has on banking (the lenders who finance commercial real estate holdings) in a year or so.
You could do an entire article on Mission street between 21st and 22nd. There are empty lots and hollowed out theaters that have been just sitting there, in some case for decades.
What is the “new normal?” Is society really accepting it? What society?
Now do the same count along Mission between Cesar Chavez and Duboce. It is staggering.
Thanks for reading!
Great minds think alike! Stay tuned for Mission Street… and I will also feature some updates on Mission Street businesses in my Developments in Development column this week, too. Let us know if there’s any other stories you want us to look into.