San Francisco–North Bay retail vacancy hits highest point since 2011
At the end of 2020, the combined unemployment rate for Marin, Napa, Sonoma and Solano counties was 6.5%, up 370 basis points from 2.8% a year before. This figure, however, has been decreasing since its highest level (16.1%) at the beginning of the global pandemic in the second quarter of 2020.
Meanwhile, the unemployment rates in San Francisco and San Mateo counties in the fourth quarter were 6.0% and 8.3%, respectively.
The median household income in the region was up 1.6% year over year to $97,000, while population grew 0.3% in that time frame.
Highest vacancy rate since 2011
The San Francisco and North Bay metro retail market ended 2020 with the highest vacancy rate since 2011, at 6.4%. This was 10 basis points higher than the 6.3% in the third quarter and up 120 points from 5.2% one year ago.
Napa County continued to have the lowest vacancy rate in the region, at 2.8%, followed by Marin County at 4.1%, Sonoma County at 4.7% and San Mateo County at 7.0%. Meanwhile, Solano and San Francisco counties recorded high vacancy rates of 8.1% and 15.7%, respectively.
Almost all counties in the region, except Sonoma County, experienced negative quarterly absorption. The total net absorption in the fourth quarter was negative 72,100 square feet, bringing the 2020 total to negative 450,600 square feet.
This reflects the largest giveback of retail space since 2009. Bankruptcies and strategic store closures were the major factors to the increase of vacancy rate and drop of absorption. Leasing activities have slowed across all retail categories, especially in the apparel and small business categories, such as restaurants, bars, health clubs and beauty salons. In December 2020, all counties in the region began to implement California’s regional stay at home order, which shuts down business like salons and indoor gyms, and limits restaurants to delivery and takeout service only.
With no new retail space added to the market in the fourth quarter, the retail inventory in the region was stable at 40.1 million square feet.
Rent asking rates decline
As of the fourth quarter of 2020, the average asking rent in the region was recorded at $26.18 per square foot on an annual triple-net basis, down 3.3% from $27.07 one year ago. Rental rates range from $17.74 per square foot in Solano County to $31.82 in Marin County.
Given the current economic backdrop, we expect rents to continue to decline along with an increase in vacancies, at least for the short term.
Jennifer Hibbitts is a senior director in Cushman & Wakefield’s Larkspur office, specializing in retail real estate.
