San Francisco Retail Market Conditions – Q3 2025 Overview

“Retail For Lease” Colliers sign.

Citywide Retail Market Overview (Q3 2025)

San Francisco’s retail real estate market is showing early signs of stabilization in the third quarter of 2025 after several turbulent years. Key indicators suggest that the broader market’s decline is leveling off. The citywide retail vacancy rate stands around 6%–8% – elevated relative to pre-pandemic norms but slightly improved from its peak in late 2024. In fact, overall vacancy edged down by 0.1 percentage points year-over-year, reflecting a marginal tightening of supply. Net absorption, which had been sharply negative in 2023–2024, turned modestly positive in 2025 as leasing activity picked up. Over the past 12 months, San Francisco absorbed roughly 180,000 square feet more retail space than it lost – a notable turnaround from the -600,000 SF and -550,000 SF net losses in 2023 and 2024, respectively.

Rents are beginning to stabilize alongside occupancy. After two years of decline, market rents are essentially flat – posting about a -1.5% annual growth as of Q3 2025. This modest dip in asking rents continues a trend of stagnant pricing during the downturn, though experts forecast a return to positive rent growth by 2026 if current momentum holds. On average, asking rents citywide are around $42–$45 per square foot annually (triple net) for ground-floor retail. However, rent trends diverge by location: prime downtown corridors have seen rents fall 4% or more in the past year, while neighborhood and suburban retail rents have remained relatively stable.

Leasing activity has accelerated significantly. Total leasing volume in early-to-mid 2025 rebounded to roughly the five-year average pace, a sharp improvement from the pandemic lull. Brokers report that Q2 2025 leasing volume was among the highest in the past five years, indicating returning tenant interest. This improved demand has been enough to offset ongoing store closures and push net absorption into positive territory. In fact, San Francisco recorded ~200,000 SF of positive net absorption year-to-date by Q3 2025, a stark contrast to the heavy move-outs of the prior two years.

Importantly, new construction remains muted, so supply pressures are minimal. In the last year, only about 125,000 SF of new retail space delivered, and currently just ~212,000 SF is under construction citywide. Developers have largely paused retail projects given weak demand growth and restrictive planning policies that discourage speculative retail development. The lack of new supply is helping the market find equilibrium; with little new space coming online, absorption gains directly translate into lower vacancy. Indeed, the overall availability rate (vacant plus sublease space) has held flat around 5.3% this past year.

Overall, San Francisco’s Q3 2025 retail market conditions can be characterized as cautiously improving. The worst of the pandemic-era correction appears to be over: vacancies are high but no longer climbing, rents are firming, and tenant demand is returning in select areas. However, performance varies dramatically by location – a theme explored in the next section.

Best vs. Worst Performing Submarkets: West of Van Ness vs. Yerba Buena

Divergence between submarkets is extreme in San Francisco, with some areas enjoying healthy retail fundamentals while others struggle with unprecedented vacancies. According to the MMCG database, the West of Van Ness submarket is currently the city’s best-performing retail area, whereas Yerba Buena (which includes the embattled Union Square and Mid-Market vicinity) is by far the worst-performing. A comparison of these two highlights the tale of two cities within San Francisco’s retail landscape.

West of Van Ness (covering neighborhoods west of Van Ness Avenue, such as Pacific Heights, Western Addition and parts of Geary Blvd) has one of the lowest vacancy rates in the metro area at just ~2.1%. This submarket’s retail spaces – largely neighborhood-serving shops, grocery-anchored centers, and everyday services – remained remarkably resilient through the downturn. Vacancy here actually decreased by ~0.5% over the past year, indicating that demand kept up with supply. As of Q3 2025, West of Van Ness has absorbed about 59,000 SF of space in the last 12 months, a solid net absorption that underscores its stability. In fact, net absorption in this submarket has been consistently positive or flat in recent years, with only minor fluctuations. Rental rates in West of Van Ness have held steady – market asking rents are essentially flat (about -0.9% YOY growth), reflecting landlords’ ability to maintain rents even during the citywide slump. Current asking rents in this area average in the mid-$40s per square foot, slightly above the city’s average, thanks to the submarket’s affluence and strong foot traffic.

Crucially, new supply is limited in West of Van Ness. Virtually no new retail projects delivered in the past year (0 SF) and only a single small project (~7,200 SF) is under construction. This lack of new inventory has helped keep the vacancy rate low. West of Van Ness’s historical vacancy peaked around 4.9% (back in 2006) and bottomed out near 1.1% in the mid-2010s – a range far tighter than most other submarkets. The submarket’s success can be attributed to its stable residential base and local-serving retail mix. Being more residential and less dependent on office worker traffic or tourism, West of Van Ness saw steady sales from nearby residents even as downtown areas emptied out. As evidence, one of the biggest lease deals in this submarket was T&T Supermarket’s 50,000 SF lease at City Center (Geary/Masonic) in early 2025, filling a long-vacant big-box space with a popular Asian grocer to serve local shoppers. This kind of tenant – offering daily necessities – thrived as people stayed closer to home.

In stark contrast, Yerba Buena (encompassing the downtown retail core, including the Union Square, Market Street corridor, and SoMa around Yerba Buena Gardens) is facing an historic retail vacancy crisis. The vacancy rate in Yerba Buena has skyrocketed to 47.8% as of Q3 2025 – effectively half of all retail space is sitting empty in this submarket. This is unprecedented for San Francisco. For perspective, Yerba Buena’s 5-year average vacancy was 21.7% and the 10-year pre-pandemic average was just 11.8%. The current ~48% vacancy is more than double its recent historical average and represents the highest on record. Over the past year alone, vacancy climbed by another 1.2 percentage points, as move-outs continued to slightly outpace any new leases. Net absorption in Yerba Buena was -23,000 SF in the past 12 months, meaning the submarket lost additional occupancy on net. This comes on the heels of an even larger exodus in prior years – notably a massive -709,000 SF net absorption in Q1 2024 alone when several major stores closed.

The severity of Yerba Buena’s downturn is illustrated by the virtual emptiness of its largest retail complex: the Westfield San Francisco Centre (recently defaulted and now taken over by lenders). Following the exit of anchor tenants Nordstrom and Bloomingdale’s (both of which announced closures by 2023/2024), plus many smaller store closures, this 1.2 million SF downtown mall is now nearly 95% vacant. The mall’s failure single-handedly pushed the downtown shopping center availability rate to 26.9%, versus just ~5% availability in the wider metro. Indeed, “Mall” vacancy in the Yerba Buena submarket is over 60%, reflecting Westfield’s woes. Beyond the mall, street-front retail in Union Square has also been pummelled – the Union Square district had a 22% vacancy rate in Q1 2025, a figure that continued to creep up through mid-2025. The causes are well-documented: a collapse in tourism and office foot traffic, some highly publicized incidents of theft and street disorder, and the lingering perception that downtown is less inviting – all of which have kept shoppers and tenants away.

Compounding Yerba Buena’s challenges is a complete lack of new demand drivers. No new retail construction is underway in this submarket (and hasn’t been for over a decade). With roughly 1.86 million SF of existing inventory, there is simply far more space than tenants to fill it. Rents have started to adjust downward, but perhaps not enough to spur leasing. Asking rents in Yerba Buena average about $55/SF (blended across luxury Union Square spots and smaller spaces) and have declined only -0.2% year-on-year – a relatively small drop given the vacancy overhang. Landlords have been reluctant or slow to slash rents, partly in hopes of an eventual rebound and because some vacant units are in newer developments that were underwritten at high rent levels. Meanwhile, holding costs for these vacancies are mounting, and few retailers are willing to bet on downtown’s recovery just yet.

In summary, West of Van Ness vs. Yerba Buena exemplifies the bifurcation of San Francisco’s retail market. The former, with 2% vacancy and steady demand, is buoyed by neighborhood spending and necessity retail. The latter, with ~48% vacancy, is reeling from the loss of tourists, commuters, and major anchors. Historical data shows West of Van Ness retained low vacancies even at the height of the pandemic, while Yerba Buena’s vacancy went from near-zero a decade ago to almost half the stock today. The best submarket is essentially full; the worst is half-empty.

Looking ahead, these areas may also represent opposite recovery trajectories. West of Van Ness should continue to perform well – its pipeline is minimal and new tenants like T&T Supermarket will further strengthen its draw. Yerba Buena, however, faces a long road: filling nearly 900,000 SF of vacant space (much of it large-format department stores) likely requires major repositioning (e.g. conversion to non-retail uses) or a resurgence in urban shopping that is several years away. This stark contrast underscores how location and use-case are defining factors in San Francisco’s retail rebound.

Macro Factors Shaping the Market Dynamics

To fully understand the San Francisco retail market conditions, one must consider the broader macro-level forces that have reshaped demand over the past few years. The post-COVID recovery has been uneven and fraught with challenges, particularly for urban retail cores. Several key factors stand out:

• Post-COVID Population Shifts: San Francisco experienced a notable population decline during the pandemic. The city’s population fell from about 883,000 in 2019 to roughly 827,000 by 2024, as many residents relocated due to remote work freedom, high costs, or health concerns. Fewer residents meant fewer local shoppers – a direct hit to retail spending. Although out-migration has slowed and some households have returned, the city’s population is still well below its peak, which translates to a smaller customer base for retailers. Additionally, international tourism and student populations (important for SF retail) vanished in 2020 and have only partially recovered by 2025.

• Remote Work & Daytime Foot Traffic: Perhaps the biggest factor is the persistent prevalence of remote and hybrid work. San Francisco’s large white-collar workforce has not fully returned to the office, significantly reducing daytime foot traffic in downtown retail districts. By some measures, the city’s daytime population (workers + visitors) is down by hundreds of thousands compared to pre-pandemic levels. Office attendance in 2025 remains under 50% in many firms. This has a direct effect on shops that once thrived on office lunch crowds, after-work shoppers, and business traveler spending. As local brokers note, the loss of office workers and tourists “during and after the COVID-19 pandemic” led to a sharp drop in foot traffic downtown. Areas like Union Square and SoMa that rely on these segments saw the steepest declines in sales and occupancy. By contrast, residential neighborhoods experienced a “localization” of spending – with many people working from home, neighborhood shopping corridors saw more consistent foot traffic (think local cafes, groceries, home goods stores seeing nearby residents during the day). This shift in where people spend their time (and money) is a key reason suburban and outer-urban retail in SF is outperforming downtown.

• Economic Shifts & Consumer Behavior: The broader economic climate has also influenced retail dynamics. The past year brought high inflation and rising interest rates, squeezing consumers’ disposable income and raising costs for retailers. In high-cost San Francisco, many consumers became more price-sensitive, benefiting discount and value retailers. This is evident in Ross Dress for Less doubling down on downtown (more on that later) and in the generally stronger sales at outlets and budget-friendly stores. Conversely, categories tied to the housing market (furniture, home improvement) slowed markedly as interest rates curtailed home purchases and renovations. E-commerce remains a competitive force as well – online shopping growth accelerated during the pandemic and has normalized at a higher level, meaning brick-and-mortar stores, especially in discretionary categories, face a smaller pool of in-person shoppers than before. That said, many retailers have adopted omnichannel strategies and use physical stores for pickup/returns, which somewhat cushions the impact.

• Public Safety and Perception: It’s impossible to ignore the narrative around crime, homelessness, and open-air drug use in downtown San Francisco, which became highly publicized in 2022–2023. While the actual impact on retail varies by location, the negative perception has been a deterrent for some shoppers and retailers. High-profile incidents (like organized shoplifting sprees) and viral images of troubled streets hurt San Francisco’s brand. Retailers like Walgreens and CVS cited safety concerns in closing some stores. The city has since increased police presence and community ambassadors in retail areas, and by late 2024 conditions “have improved” on key blocks, but restoring consumer confidence will take time. Tourism recovery is likewise tied to these perceptions – domestic tourism in SF is bouncing back strongly, but some international visitor segments are lagging, partly due to lingering safety concerns. Tourists are vital for Union Square retailers (luxury stores, flagship experiences), so their full return is critical.

• COVID-era Legacy Effects: The pandemic also left some lasting changes in consumer preferences. Shoppers became more accustomed to shopping local (supporting neighborhood businesses) and to outdoor/experiential retail formats. Malls and dense indoor shopping environments recovered more slowly as people initially avoided crowds. San Francisco’s downtown, with its vertical malls and reliance on conventions (Moscone Center) and theatergoers, felt this acutely. Only by 2023 did conventions and events resume at scale, and even then many companies reduced business travel. On the plus side, San Francisco’s overall retail spending has been buoyed by a robust economic recovery in the tech sector through 2021 and, more recently, by rising tourism in 2023–2025 (hotel occupancy and airport passenger volumes are climbing). The mix of spending has changed – more is happening in outer neighborhoods and on services/experiences, less in downtown department stores – but total retail sales citywide are gradually rebounding.

In summary, macro forces like remote work, population shifts, and the post-COVID economy have created a new geography of retail demand in San Francisco. Downtown’s pain is partly a structural change – fewer daily workers and tourists – while neighborhood retail benefited from more stay-at-home consumers. Any sustained recovery downtown will likely depend on reversing some of these trends (e.g. getting workers back, attracting residents and tourists), which local leaders are actively trying to do. The next section discusses how these dynamics are reflected in the churn of major tenants.

Tenant Turbulence: Key Departures and New Entrants

San Francisco’s retail landscape since 2020 has been marked by dramatic tenant turnover, with several high-profile exits grabbing headlines even as a new wave of tenants cautiously enters the market. This churn provides insight into which retail formats are struggling versus thriving in the current conditions.

On the departure side, a string of major retailers have shuttered stores or left the city entirely in the past 18–24 months. Most prominently, Nordstrom closed its flagship 312,000 SF department store at Westfield San Francisco Centre in August 2023, after 35 years in that downtown location. Nordstrom’s pullout (along with its adjacent Nordstrom Rack) was a symbolic blow, signaling that even top-tier retailers were unwilling to weather the downtown slump. Soon after, Bloomingdale’s announced it will close its San Francisco Centre store by spring 2025, leaving that mall with no anchor department stores. These exits have left hundreds of thousands of square feet of prime retail space vacant and significantly reduced reasons for shoppers to visit the mall. Indeed, the mall’s owners defaulted on their loan, and the property went to a foreclosure auction in mid-2025. Other national chains have also retrenched. Uniqlo, H&M, The North Face, and Walgreens all closed prominent Union Square locations during 2020–2023, often citing a combination of declining sales, high operating costs, and safety concerns. Even Whole Foods temporarily closed its large flagship grocery in the Mid-Market area in 2023 due to safety issues (though it hopes to reopen eventually).

Local retailers have not been immune either. A notable example is Kelly-Moore Paints, a Bay Area-founded paint supply company. In 2023, Kelly-Moore ceased operations entirely due to mounting asbestos litigation costs, abruptly shutting down all its stores and leaving nine Bay Area locations vacant (several in San Francisco). This was less about local market conditions and more about corporate issues, but it nonetheless added to the vacancy tally and was a loss of a long-time local business. Additionally, some smaller chains and independent shops have quietly folded, especially in downtown. The cumulative effect was stark: by 2024, San Francisco had over 300 empty storefronts downtown, and some blocks (like parts of Powell Street and Van Ness Avenue) were lined with “For Lease” signs.

Yet, amid this exodus, there are encouraging signs of new retail investment and even a few big-name returning entrants. Perhaps the most significant vote of confidence was Zara’s decision to open a new 40,000 SF flagship store in Union Square. In an unexpected twist, the global fashion retailer reversed an earlier plan to exit downtown. Zara closed its older store at 250 Post Street in early 2025, but rather than leaving San Francisco, it signed a lease for a larger, four-story space at 400 Post Street (the former Macy’s Men’s store site). The new Zara flagship, slated to open in 2026, will be nearly twice the size of the old one and keeps a major fashion brand in the city’s “heart”. City officials hailed this as a turning point, with Mayor (now Daniel Lurie) calling it a sign that “global brands want to grow here” and “San Francisco is on the rise”. Zara’s recommitment, alongside other international brands, suggests that Union Square’s core appeal endures if the conditions are right. Notably, around the same time, Nintendo opened a new experiential store on Geary Street (only the second Nintendo store in the U.S.), and Ikea launched a new urban-format store on Market Street in 2023 – both betting on a revival of downtown foot traffic.

Another positive storyline has been the expansion of off-price and budget-friendly retailers. Ross Dress for Less, a discount department store chain headquartered in the Bay Area, made a bold move in July 2025 by opening a second large store on Market Street – directly across from its long-standing flagship store. The new 30,000 SF Ross at 901 Market St. (in a space formerly occupied by Nordstrom Rack) was aimed at “reinjecting life” into the area and relieving crowding at the original store. Ross’s CEO noted that while others shuttered stores, they saw an opportunity to “deliver even more value” to city shoppers and took advantage of favorable lease terms downtown. Impressively, Ross also just renewed its lease for 10 years at 799 Market St., signaling a long-term commitment. The strategy seems to be paying off – Ross’s downtown locations are among its highest-volume stores, bolstered by bargain-hunting locals and tourists alike. This reflects a broader trend: consumers gravitating to value-oriented retailers in uncertain economic times. Similarly, Grocery Outlet, a discount grocer, opened a 30,000 SF store at Northpoint Centre, and HomeGoods (a discount home furnishings chain) backfilled a former Bed Bath & Beyond in nearby Daly City. These tenants thrive on price-conscious demand and are helping fill some large-format vacancies.

San Francisco is also seeing new categories of tenants stepping into retail spaces. One notable category is health and wellness. For example, an urgent care provider was the only retailer to open more than one new location in SF in the past year – this medical clinic operator signed two new leases for clinics in 2024–2025. Healthcare tenants (urgent cares, dental offices, etc.) are increasingly occupying retail storefronts, drawn by good street visibility and convenient access for patients. They’re filling spaces vacated by traditional retailers, especially in areas with high vacancies where landlords are open to non-retail uses. Fitness centers are another: Fitness SF took over a 44,000 SF space on Van Ness Avenue in late 2024, and smaller boutique gyms and yoga studios have popped up in various neighborhoods. These uses not only fill space but also drive foot traffic (gym-goers, patients) that can benefit nearby shops.

Finally, international grocery chains and specialty food markets see opportunity in San Francisco’s demographics. The aforementioned T&T Supermarket (a Canadian-Asian supermarket brand) choosing San Francisco for its first U.S. West Coast store is a prime example. T&T is set to open a 4th U.S. location at 2675 Geary Blvd (City Center) by 2026, taking over a long-vacant big box space and catering to the city’s large Asian community. The arrival of T&T not only fills a vacancy but also signals confidence in the city’s consumer spending power. In suburban San Mateo County, a Japanese market (Osaka Marketplace) and other ethnic grocers have expanded as well, reflecting the Bay Area’s multicultural food scene resilience.

In summary, San Francisco’s retail tenant mix is in flux, with an exodus of some legacy department stores and chains on one hand, but a gradual influx of new players on the other. The city lost a number of marquee brands (Nordstrom, Bloomingdale’s, etc.), yet it is also attracting growth from value retailers, experiential brands, and non-traditional retail uses. The churn aligns with the macro trends: sectors like luxury apparel and big-box home goods contracted, whereas discount retail, daily-needs grocery, and services (medical, fitness) are expanding to meet evolving consumer needs. As the market stabilizes, we are likely to see more space repurposed or re-tenanted in creative ways – for instance, large empty department store shells could become multi-tenant marketplaces, entertainment venues, or even educational facilities, depending on who steps up to backfill them. The next section will discuss how local authorities and stakeholders are actively working to facilitate such transitions and improve conditions for retailers.

Revitalization Efforts by Local Authorities and Stakeholders

Recognizing the urgency of the retail downturn, city authorities, business groups, and community stakeholders have launched a multipronged effort to improve San Francisco’s retail conditions. Their strategies range from regulatory reforms to creative activation programs, all aimed at reducing vacancies and restoring vibrancy to shopping districts.

One major focus has been policy and regulatory changes to encourage retail occupancy and adaptive reuse. San Francisco historically has had strict planning codes – including onerous restrictions on “formula retail” (chain stores) and requirements for ground-floor retail in new developments – which, in today’s environment, have sometimes hindered filling vacancies. In 2024–2025, the city moved to relax some of these rules. For example, in April 2025 the Board of Supervisors unanimously lifted the special permit requirement for chain stores along a 23-block stretch of Van Ness Avenue. This means big retailers (defined as having 11+ locations) can now open on Van Ness without a lengthy conditional-use process, which previously took 12–18 months and deterred interested tenants. Officials acknowledged that with Van Ness’s ground-floor commercial vacancy at 53% (versus ~7.7% citywide), the city needed to “reduce barriers to filling commercial vacancies” and welcome businesses that can pay rent. The change essentially invites the Targets, Starbucks, and other chains of the world to help revive a corridor plagued by empty new storefronts. Similarly, a carve-out was approved to streamline opening a new grocery store in the Fillmore (after a Safeway closed), indicating more flexibility in zoning for critical needs.

Another bold proposal comes from Mayor Daniel Lurie’s office: a plan to allow and expedite conversion of vacant retail space into other uses like offices or amenities. Unveiled in mid-2025, this plan would let downtown commercial landlords “skirt the existing approvals process and turn spaces zoned for retail into office amenities” such as gyms, tenant lounges, or coworking spaces. For instance, the owner of 201 Mission Street is seeking to convert a former ground-floor Starbucks into a gym for the building’s office tenants. Normally, changing retail space to a non-retail use could take nearly a year of permitting in SF; the Mayor’s legislation would slash this timeline, recognizing that keeping office buildings leased may require repurposing empty storefronts as attractive amenities for workers. This initiative, part of a broader “PermitSF” streamlining push, targets the Financial District, SoMa, and parts of Nob Hill/Tenderloin – essentially downtown areas with lots of empty retail. If approved (the plan is co-sponsored by several Supervisors and would run as a trial until 2030), it could quickly activate vacant windows with useful services (like fitness centers or even daycares for office employees), thereby both supporting office retention and preventing street blight. It’s a creative recognition that not all empty retail will return as shops – some may be better used as, say, a building lobby extension, art gallery, or community space – and the city wants to facilitate those transformations.

To directly tackle the empty storefront problem, San Francisco has also rolled out innovative “pop-up” programs and incentives. In late 2023, the city partnered with local nonprofits (like SF New Deal) to launch “Vacant to Vibrant,” an initiative offering short-term leases with subsidized (often free) rent for small businesses and artists to occupy empty downtown storefronts. By mid-2024, Vacant to Vibrant had placed a number of pop-up shops in Union Square and the Financial District – including local artisan boutiques, galleries, and even a Dandelion Chocolate pop-up. These pop-ups bring life to formerly dark windows, create opportunities for entrepreneurs, and signal to larger retailers that the area is turning around. Mayor London Breed’s office (and now Mayor Lurie) have celebrated the opening of new pop-ups, framing them as “proof of concept” that vacant spaces can be reactivated with a little help. The program effectively lowers the barrier to entry for businesses by eliminating rent for an initial period (the city covers it through grants) and simplifying permitting. While these pop-ups are temporary, a few have shown strong sales and are negotiating longer-term leases – a win-win if they transition to permanent tenants.

Additionally, local business associations are working to boost foot traffic and improve the atmosphere in key retail districts. The Union Square Alliance, for instance, has organized frequent events and promotions to draw visitors. In 2023 they helped host “Winter Wanderland” holiday markets in vacant stores and in 2024 launched “Third Thursdays” – a monthly evening event with live music, art, and open-air shopping in the Union Square area. One such initiative was the Ellis Street Outdoor Entertainment Zone, which allows restaurants to serve into the street and hosts performances to create a nightlife hub. This zone, opened in September 2025, is one of 13 such zones citywide intended to make commercial streets more fun and welcoming. Longtime merchants like John’s Grill have been champions of these efforts, noting that business is “booming once again” when events activate the neighborhood. The Alliance also touts recent successes in attracting new stores – like the aforementioned Nintendo store, trendy Asian fashion brand Pop Mart, and Shoe Palace – as green shoots of recovery. For its part, the city is investing in cleanliness and safety: more police patrols, street ambassadors, graffiti removal, and lighting improvements are being deployed especially in Union Square, Mid-Market, and tourist zones. The new mayor has explicitly made downtown safety a priority, stating “we are working every day to deliver safe and clean streets in Union Square and across downtown” to give businesses confidence to return.

In terms of broader redevelopment, city leaders are considering big-picture rethinks of surplus retail space. Ideas on the table include converting parts of the decimated Westfield mall into offices, educational campuses or even residential units (though the latter faces structural challenges in a mall format). The Planning Department is also revisiting the mandatory ground-floor retail requirement for new buildings – acknowledging that forcing retail in every new development can lead to chronic vacancies if there isn’t demand. Seattle’s example of removing 1.5 million SF of excess retail space in recent years (through conversions to other uses) is cited as a model San Francisco might emulate. Essentially, “right-sizing” the retail supply is seen as necessary; that could involve allowing owners to merge or eliminate some small retail bays and turn them into housing or offices. The city’s recently passed downtown recovery plan (the “Heart of the City” initiative) includes studies on converting unused space and incentives (like tax abatements or fast-track permits) for property owners who bring in desirable uses (e.g. grocery stores in food deserts or arts/cultural uses in empty stores).

Finally, the suburban retail centers and neighborhood commercial corridors have not been forgotten. While downtown gets a lot of attention, officials also recognize that supporting retail in outer neighborhoods and suburbs keeps sales tax revenue in the region and provides employment closer to where people live. Some suburban Bay Area cities (outside SF proper) have offered their own incentives to attract retailers leaving San Francisco. For instance, Westfield’s sister mall in San Jose aggressively courted retailers like Nordstrom (though Nordstrom ultimately chose not to relocate there). San Francisco’s government, for its part, has been promoting shopping locally in neighborhood corridors – through marketing campaigns, grants to merchant associations, and streamlined outdoor dining/parklet programs that make local shopping streets more lively. During the pandemic, parklets and street closures (like Valencia Street’s weekend pedestrian zone) helped many neighborhood retailers survive, and many of those innovations are being kept in place permanently due to their popularity.

In summary, the city and its partners are pulling multiple levers to revive retail: loosening regulations that hinder filling vacancies, actively recruiting tenants (even if it means courting chain stores once shunned), offering creative assistance like pop-up programs and events, and addressing safety/cleanliness to change the narrative. It is an ongoing experiment in urban revitalization, one that will likely continue evolving as results become clear. Early indicators (like new store openings and slower vacancy growth) suggest these efforts are making a difference, but the full impact will play out in the coming years.

Investment Outlook: Risks, Opportunities, and the Next Cycle’s Winners

From an investment perspective, San Francisco’s retail market presents a complex, high-risk but potentially high-reward landscape as it heads into the next real estate cycle. A balanced view must weigh the evident challenges against the signs of opportunity that are emerging in this evolving market.

Key Risks: The risks in San Francisco retail are evident and mostly tied to the structural changes discussed. Demand risk is high in downtown – if remote work and changed consumer habits are here to stay, some retail corridors may never regain their former sales volumes, limiting the upside for investors in those areas. There is also execution risk around the city’s recovery initiatives; for example, if safety and cleanliness measures falter or if the city’s political will to streamline regulations wanes, the fragile progress could stall. Economic uncertainty remains a factor: a recession or tech industry slowdown in 2026 could hit consumer spending and retailer expansion plans, exacerbating vacancies. High borrowing costs (with interest rates still elevated in 2025) pose a risk for refinancing and redevelopment – owners of distressed assets like the SF Centre mall may struggle to find affordable capital for repositioning. Additionally, valuation and liquidity risk is notable: retail property values in SF have declined sharply (the Westfield mall’s value reportedly plunged ~25% in a few years), and transaction volume is low, meaning investors may face difficulty exiting investments at favorable pricing until the market clearly turns.

Moreover, operational costs and regulatory burden in San Francisco are high. Retail landlords face one of the nation’s highest property tax and labor cost environments, and while some red tape is being cut, it’s still a complex city for permits and approvals. For new entrants, the learning curve is steep and costly. Public sentiment and political risk also cannot be ignored – public patience for vacant storefronts is thin, and there could be pressure for measures like vacancy taxes or stricter building codes if recovery is slow (San Francisco has floated taxing landlords who keep spaces empty too long). In short, any investor in SF retail must be prepared for a bumpy ride in the short term, with no quick fixes guaranteed.

Value Opportunities: That said, the flip side of distress is opportunity. The current downturn has significantly lowered asset prices for San Francisco retail properties, particularly in downtown. Prime properties that were once tightly held are now trading (or up for grabs via foreclosure) at fractions of their pre-pandemic value. For example, investors willing to take on the challenge can acquire large-footprint downtown retail at a steep discount – potentially setting the stage for outsized returns if they can successfully reposition it. Some savvy investors are already hunting for “value-add” plays: converting beleaguered shopping spaces into mixed-use developments or picking up neighborhood centers with upside in lease-up. The city’s willingness to allow conversions to offices, gyms, etc., as noted, opens creative avenues to extract value from what was pure retail space. An investor who can navigate the approvals could turn, say, an empty department store into a thriving office campus with ground-floor retail – capturing office tenant demand while also revitalizing the street presence.

Additionally, demand is strong for certain types of space. Well-located neighborhood retail centers (especially those anchored by grocery or essential services) are effectively fully occupied and have waiting lists of tenants. These assets have proven their resiliency and are likely to enjoy rent growth as the population stabilizes – making them attractive for core investors. Even in the city, certain streets like Chestnut in the Marina or 24th Street in Noe Valley have very low vacancies and healthy foot traffic; investing in retail there is almost a defensive play akin to bond-like income. For opportunistic investors, the gap between struggling and thriving submarkets means capital can be directed to areas with the strongest fundamentals (like West of Van Ness, which could support new development or expansion of retail given its low vacancy) or to distressed assets in bad locations only if acquired at rock-bottom prices. Essentially, price discovery is ongoing – those who can buy at 2025’s distressed pricing and hold through the recovery stand to benefit.

Likely Winners in the Next Cycle: In terms of segments and players poised to succeed, a few stand out:

• Necessity & Service Retailers: Grocery stores, pharmacies, medical clinics, discount apparel, and personal services (salons, pet care, etc.) will continue to be the stalwarts. They draw consistent demand and are less volatile. Expect to see more grocery and daily needs stores expanding – possibly local chains or new concepts – especially in neighborhoods that gained population or lack those services. Retail spaces that can accommodate these uses (ample parking or street access, right zoning) will be winners.

• Experiential and Tourism-Oriented Retail: San Francisco’s unique position as a global tourist destination means experience-based retail will bounce back as tourism fully returns. We’re already seeing interactive flagships (Nintendo) and entertainment venues showing interest downtown. Properties near tourist hubs (e.g. Fisherman’s Wharf, Union Square) that can be reimagined as experience centers (think immersive art exhibits, showrooms, event spaces) could outperform. Landlords who partner with experiential operators or pop-up event organizers will benefit from renewed foot traffic.

• High-Street Luxury (Long-Term): While luxury retail took a hit (with several closures in Union Square), the long-term prospects still favor global luxury brands maintaining a presence in San Francisco due to the Bay Area’s wealth. Flagship locations on Union Square or Maiden Lane may lie fallow for a couple of years, but as the environment improves, expect luxury groups to come back (possibly under more favorable lease terms). Investors picking up trophy retail locations now (at a discount) could see them re-tenanted by luxury brands later, restoring value.

• Adaptive Reuse Developers: Those real estate players adept at creative conversions stand to gain. For instance, developers who can turn a big empty retail box into a mixed entertainment and office complex, or into urban housing (where feasible), will unlock value that pure retail landlords could not. With the city easing some zoning constraints, there is a window for innovation. We might see portions of vacant mall space converted to tech incubator offices, or an old multiplex theater reborn as a fitness and wellness center. The next cycle’s winners will likely be those who think beyond traditional retail and treat these properties as flexible real estate assets.

• Neighborhood Property Owners & Merchants: The resilience of neighborhood commercial strips means small-scale owners in these areas will continue to see stable rents and low vacancy. As remote work persists, these local hubs (from Clement Street to Hayes Valley) will be the steady earners, and property values there may even rise as investors recognize their strength. Additionally, merchants in these areas – often local entrepreneurs – can thrive and expand, perhaps taking on additional locations vacated by chains. In the next cycle, we could see a renaissance of local businesses expanding to fill gaps left by corporate retrenchment, especially if financing becomes available for them.

In concluding, San Francisco’s retail market is at an inflection point. The current conditions reflect a market recalibrating itself – shedding excess space and outdated formats, while new concepts and uses slowly backfill the voids. It is a challenging environment, no doubt: investors and retailers must proceed with caution and creativity. Yet, the city’s fundamental strengths – a high-income population, millions of visitors, dense urban fabric, and culture of innovation – remain intact. Those betting on San Francisco are essentially betting that these fundamentals, coupled with concerted civic efforts, will overcome the cyclical and structural headwinds. The next cycle is likely to reward contrarian investors and adaptive businesses who move now to secure prime opportunities at lower costs. In a few years’ time, today’s vacant storefronts could be success stories of repurposing and comeback. The road will be uneven, but for the patient and strategic, San Francisco retail’s next chapter could indeed offer significant upside once the market fully finds its footing again.

Overall, San Francisco’s retail market conditions in 2025 can be summed up as recovering but reimagined. The city is reinventing its retail landscape through policy innovation and market adaptation. In doing so, it may well emerge in the next cycle with a more sustainable, diversified retail ecosystem – one that balances the gloss of its global shopping districts with the vitality of its local neighborhoods, ready to thrive in the post-pandemic era.

September 22, 2025, by a collective authors of MMCG Invest, LLC, (retail/hospitality/multi family/sba) feasibility study consultants.

Sources:

• GrowSF Research – “San Francisco’s Retail Vacancy Problem” (July 2025)

• San Francisco Chronicle – various articles on retail closures and openings

• KTVU & SF Standard – reports on downtown recovery initiatives and new tenant announcements

• City of San Francisco – Press Releases on Union Square revitalization and policy changes