News
SF small businesses spot opportunities in the city’s real estate crash
October 21, 2024 • Source: SF Standard • Posted in: Market News
Michelle O’Connor thought she was taking a risk when she opened a second location of her Noe Valley shop, Just for Fun, in the Marina in June. She never expected that, mere months later, she would open a third store on Fillmore Street.
“It was sooner than I wanted — I could have waited another year,” she admitted. But the location and price felt too good to pass up.
At a time when many retailers and restaurateurs are calling it quits on the city, leading to record-high vacancy rates last quarter, a swath of business owners have decided to double — or triple — down, thanks to what they describe as a renter-centric commercial real estate climate.
“SF is going through this renewal and regeneration at the moment,” O’Connor said. “These opportunities won’t be around forever. I’m investing in San Francisco being back on the up.”
She isn’t alone: In the year to June 30, the San Francisco Office of Small Business assisted 261 owners who wanted to expand versus 197 in the previous fiscal year. (Notably, the office brought on a permit specialist and a leasing specialist in the past two years.) During the same period the office also dispensed 14 “Storefront Opportunity” grants of $50,000 to businesses adding a location.
O’Connor, who didn’t receive grant money, said she and her husband are committed to building community and healthy commercial corridors in the city where they’re raising their two children.
“San Francisco had a tough time through Covid — a lot of businesses didn’t survive, and there’s a void,” O’Connor said. “It’s sad to see businesses go, but someone’s got to step up and fill that void; otherwise, we wouldn’t have anything. So I guess that’s why I’m trying my luck at it.”
Buying the dip
For Outta Sight pizzeria founders Eric Ehler and Peter Dorrance, opening a new outpost felt like a way to add stability to their business and take advantage of the fact that their Tenderloin shop regularly hits capacity. They’re set to debut a location straddling the Chinatown and Financial District border in November.
“It was a great deal,” Ehler said of the space, which the duo found last year. The current market gives entrepreneurs ample room to “negotiate” and “be diligent” to find a good landlord, he added.
“There’s so much empty retail space and commercial space out there, and there’s so much that will hit the market soon too,” he said. “Not to be disheartening, but this feels like a time for the change in guard.”
To be sure, entrepreneurs like Ehler and Dorrance are moving against a larger trend: San Francisco’s retail vacancy rates hit a new high this quarter at 7.9%, according to Cushman Wakefield’s Kazuko Morgan. But that means business owners looking for leases can find gems. “There have been a lot of people sitting on the sidelines,” Morgan said. “But the people who recognize that it’s a tenant’s market are taking advantage and doing deals.”
San Francisco will eventually rebound, she predicts, and savvy businesses are locking down leases before that happens. She got a glimpse of the potential future on a recent trip to New York City, where she saw that retail spaces were getting multiple offers and increasing their rents.
“Not so long ago we were in a 3% vacancy here,” she said. “It’s not always going to be this way in San Francisco.”
‘Really good’ prices and help from the city
Britney Lamb, founder of the Yoga Shala, remembers the pain of hunting for her first studio in 2022. Her real estate agent kept showing her spaces that cost $10,000 a month, way over her budget. She ended up scoring her Sunset studio, which hadn’t been actively listed, by contacting the building’s owners directly.
The process the second time around felt amazingly simple in comparison: She found the perfect location in the Richmond “within the first three minutes” of searching on Craigslist, Lamb recalled with a laugh. “The price felt really good,” she added. She hopes to have its grand opening at the beginning of December.
Most areas of San Francisco have seen sales tax revenue plummet since 2019, but Lamb is bullish on both the Sunset and the Richmond.
“I do think that there are people in the neighborhoods of San Francisco who aren’t going anywhere — this is their home and their community,” she said. “I think there’s a need for community and places for people to congregate.”
While obtaining the right zoning for her new space — previously occupied by a law office — entailed “several curveballs” and significant stress, she credits the city with helping her through it.
Sarah Dennis Phillips, executive director of the Office of Economic and Workforce Development, said expanding businesses have access to “one-on-one business counseling, leasing, and permitting help, as well as connections to financing and grants.”
For example, the city’s First Year Free program waives permit, license, and business registration fees for an entrepreneur’s inaugural year. One recent recipient, Ismael De Luna, opened his second storefront in the Castro in September: a wellness center, Taboo, which complements his other business, Healing Cuts.
The Taboo space “had been dark for many years,” he said, which allowed him to access other city grants geared toward filling empty storefronts. “I knew I had what it takes to bring light to an environment that was so depressing,” De Luna said. “The city is thirsty for progress.”
‘Now is the time’
De Luna’s advice for other entrepreneurs considering expansion is to dive in headfirst. “When you have a vision, nothing is impossible,” he said. “There’s always a solution for any problem that may exist.”
Outta Sight’s Ehler also advocates taking risks, advising business owners to ask for help, hire good people, and have fun.
“You don’t have to have a million-dollar build-out,” he said. “You just need to have good service and a good product. That’s what has been working for us.”
Just for Fun’s O’Connor echoes that: “My advice would be: Now is the time.”
External Link: https://sfstandard.com/2024/10/21/small-businesses-sf-doubling-down-retail-real-estate/