SF considers barring offices from Union Square ground floor

At Tuesday’s Board of Supervisors meeting, Supervisor Aaron Peskin made a bid to squeeze big-ticket office space out of the Union Square shopping district, introducing new legislation that would reserve ground floor space in Union Square for retail establishments.

“Office space is in high demand and frankly out competes retail and threatens those spaces currently occupied by retailers,” said Peskin, citing the plight not just of shopping hubs around Union Square but also the likes of “tailors, design professionals, and life sciences.”

Earlier this year, the brokerage firm JLL reported that office rents across San Francisco were up to a median price of $74.64/square foot.

By contrast, JLL noted in the same quarter that retail rents in San Francisco averaged at $17.21/square foot.

[Correction: The JLL report estimated retail rents nationwide. JLL’s quarterly SF report doesn’t single out retail rents, but Kidder Matthews’ estimated at the end of 2017 that the city was averaging $43.89/foot in such spaces. Kidder Matthews also reported the highest vacancy rate in the city this decade.]

“Tech tenants fuel leasing [the] momentum in San Francisco,” wrote JLL analysts at the time, surprising no one and leaving little ambiguity about what’s heating up the market these days.

Given that, Peskin is probably correct that Union Square landlords might be more partial to start-ups than salons.

His proposed legislation would attempt to preserve the retail character of the neighborhood by barring office use on ground floors; as a tradeoff, the law would also “make certain office space uses as-of-right on higher floors.”

Peskin said he would also lodge a “modest-impact fee” on office use, to be put toward Union Square infrastructure costs. After Tuesday’s meeting the proposal goes to the Planning Commission for consideration.

According to a Q2 2018 report by commercial real estate firm Cushman and Wakefield, Union Square’s commercial vacancy rate is 5.3 percent, compared to a citywide rate of 3.2. A year ago it was 4.7 percent.

• SF Board of Supervisors, 9.18.18 [SF Gov TV]
• Retail Outlook, Q1 2018 [JLL]
• Office Outlook, Q1 2018 [JLL]
• SF Retail Snapshot [Cushman & Wakefield]