A large advertisement in the window of the year-old 793 South Van Ness Ave. building invites possibility: You could open a restaurant here. It’s already partially built out with a hood. Above it are 75 homes, mostly full of tenants who might become regulars.
“It’s a perfect spot,” real estate agent Ross Schomaker said.
But right now, there are no takers.
Mixed-use development with large ground-floor space has enticed developers more in the past few decades. Not only has the San Francisco Planning Code required it in certain areas, but the type allows owners to diversify their real-estate holdings with commercial and residential, and it also caters to a demand for housing a minute’s walk from a storefront or cafe.
Since 2018, at least half a dozen mixed-use, market-rate projects have opened in the Mission, totaling more than 200 homes and multiple ground-floor commercial spaces.
But several of those large commercial spaces remain empty, for a mix of reasons: The pandemic was a poor time for opening a business, landlords may be holding out for a better deal, and tenants can afford to shop around, and might be nitpicky about interior layouts.
That has put a dent in dreams of European-style apartments with sidewalk cafes and constant foot traffic. Just like other retail, Covid-19 has meant that new mixed-use, market-rate projects in the Mission simply do not match the design concepts pitched by developers and architects right now.
Instead, many have cavernous and empty ground-floor spaces.
Jaron Eliopoulos, a realtor with Touchstone Commercial Partners, said he and his partner tend to oversee 40 available listings between themselves pre-pandemic. Now, that load has ballooned to 100.
“And every top broker is experiencing the same thing,” he said.
Ground-floor ‘shells’ hard to sell
Realtors blame the inability of owners and potential tenants to see eye-to-eye on the space, and newly constructed mixed-use buildings may be particularly vulnerable.
Vacant retail spaces in new buildings are more likely to be a “shell,” or a bare-bones space with random adornments. When a tenant with a specific business in mind shops around, they are less likely to rent a spot that needs significant renovation and money to create their vision. “There’s a lot of tenants who want to open as soon as possible,” Eliopoulos said.
Right now, “because there’s so much supply, even if it’s a second-generation vacancy with minor cosmetics,” tenants will pick that over a newly constructed building.
On the other hand, he’s seen more developers “go the extra mile” when building new mixed-use projects, and “design it to set up a retail space. I feel architects have gotten better at that.”
Case in point: Two commercial condos in a mixed-use building on Valencia Street, which Urban Group Real Estate successfully sold to Kuma Sushi and D&H Jewelers in 2022.
Louis Cornejo, president of Urban Group Real Estate, said he could sell two commercial condos in a mixed-use building on Valencia Street because “this specific developer [was] very thoughtful in the final product, which has an appeal to many retailers.”
Location, location, location
As with all real estate, location is everything.
Retail spots on off-shoot commercial streets tend to be less desirable without an “anchor” business that draws customers and foot traffic. This may contribute to the vacancies of one mixed-use condominium on Harrison Street, and the other on 793 South Van Ness Ave.
“Mixed-use makes sense, especially, on a primary retail street like Valencia. On some secondary or tertiary streets, maybe not,” Cornejo said.
Nevertheless, Planning Code rules require buildings to include active ground floors in several zoning districts.
Forcing a developer to include ground-floor retail in new buildings, however, may not work for every area, Cornejo said. “Sometimes, the city requires retail storefronts on streets like South Van Ness or Gough Street or alleyways. These can be very difficult to lease. It’s where you see most of the vacancies.”
Additionally, the surrounding area may contribute to a tenant passing or leaving a space. Restaurant Hawker Fare on Valencia Street and bakery Third Culture left for better locations, citing, in part, the Mission’s poor street conditions.
Real estate and residential agents also reiterated trouble leasing in areas where more homelessness or crime occurs. Schomaker said he felt like a “first responder” for the number of times he dealt with people vandalizing doorbell systems or breaking into vacant units.
Waiting for the right tenant
In some cases, property owners are turning away potential businesses because they want the perfect commercial tenant. An agent for a long-term vacancy in the Mission confirmed that the owner received multiple offers, but those didn’t fit. Stubborn vacancies along the north end of Valencia, in the 200 and 300 blocks, appear to fall under that category, too, according to Mission business owners around the area.
An owner might turn down certain businesses in favor of a certain aesthetic, especially if it’s a larger project.
“Carefully selecting a business tenant can be important, because those are immediate amenities to help sell the value of the residential,” Eliopoulos said. “I’m not speaking for everyone, but I think the majority of residents would prefer to have a nice coffee shop versus a smoke shop or a liquor store below them.”
Still, sometimes neighbors wouldn’t want that; community opposition could also potentially kill a deal. The owner of 1801 Mission St., a 17-unit mixed use building that opened in 2020, hoped to offer a lease renewal to the Creamery, a coffee shop that once thrived in SoMa, thanks to its popularity with tech clientele. Yet some Mission residents opposed the cafe and accused it of increasing gentrification. The Board of Supervisors disagreed, but no business has taken over the spot since.
While the city attempts to entice new businesses with $4 million in grants dedicated to filling storefronts, many agents feel that vacancies will only go back down when the economy picks up again.
“It feels like Covid has taken its toll. We’ll see in time,” Eliopoulos said.
Schomaker, the real estate agency, added of the empty 793 South Van Ness: “Why wouldn’t a [business owner] want a space with people above him, who could go down and shop and eat at his business?”