Matthew Kosoy wakes up at 4 a.m. every morning to load a truck full of pastries at his Pacifica bakery and bring them to a new café he’s running in Downtown San Francisco.
The owner of Rosalind Bakery, which employs nearly 30 people in Pacifica, is staffing the new location himself, as part of a program meant to enliven vacant retail spaces Downtown with the help of free rent.
Even though he only serves about 50 customers a day at his ground-floor location in 4 Embarcadero Center, a fraction of what he’d likely need to pay full freight, Kosoy says the program has been a boon for business owners like himself.
“It’s a slow burn,” Kosoy said. “Not a huge rush every day, but it’s consistent. We’re going to stick around.”
About halfway into the three-month program, called Vacant to Vibrant, Kosoy and other stakeholders say it has been a success at breathing life into Downtown facades while giving entrepreneurs a platform to get their businesses in front of new customers. Part of the concept for the program, which started with 17 pop-up retailers centered mainly on the Embarcadero Center and surrounding streets, is to inject arts, culture and a small-business feel into areas in sore need.
A few storefronts down from Rosalind is Whack Donuts, a vegan doughnut store that owner Vandor Hill started out of his kitchen during the pandemic prior to being selected for the program. Hill, who splits the small space with a coffee pop-up, York Street Cafe, says he sells some 250 donuts a day, and sometimes more. As a sign of the political cachet of the program, Mayor London Breed was one of his earliest customers.
Hill, too, hopes to extend his lease, saying he feels like he’s growing his business.
Even with promising signs, many of the program’s participants admit they have a long way to go before their spaces are ready to stand on their own financially. Put another way, going from subsidized to solvent is a more complicated proposition than the transition from empty to open.
Nafy Flatley, the owner of Senagalese restaurant Teranga, which opened an outpost through the program, said her staff of three serves about 15 to 20 people a day. The restaurant is open from 11 a.m. to 3 p.m. on weekdays but is still tweaking its hours after opening in early November. First, it got hit with a slowdown during APEC, she said, before Thanksgiving week threw another wrench into plans. Still, she sees a future in the location, also in 4 Embarcadero Center. She’d like to open early enough for breakfast but says she will wait until the new year.
“It’s a great idea, and I’d love to see it in other parts of the city,” she said.
Simon Bertrang, the executive director of SF New Deal, the nonprofit managing the program with $710,000 of funding from the city and an additional undisclosed amount from Wells Fargo, said the nonprofit will expand the program in 2024. The money covered grants to popups, improvement, insurance, and permitting costs for the spaces, as well as the technical assistance and marketing for businesses that was included as part of the program, Bertrang said.
“All across the board, we're very inspired by the activators themselves,” Bertrang said. “We feel that they're really leading the way towards creating a vision for the future of Downtown.”
Another round of businesses from the original pool of more than 850 applicants will be selected to fill other storefronts around the city, Bertrang said, and most of the initial businesses will be offered another three months of free rent to extend their operations.
A handful of others are in the process of negotiating free or preferential lease deals with commercial landlords hungry to maintain liveliness in the area.
A Permanent Foothold
Retail success is just one barometer of broader health in the area. The lifeblood of Downtown businesses—daily workers commuting to offices—remains at more of a trickle than a flood in the newly hybrid working world. Daily office occupancy in San Francisco is at about 43% of its pre-pandemic levels, according recent data from office security firm Kastle, lagging behind most other comparable cities.
Many of the program’s businesses reflect this new, slower business paradigm. Some keep limited hours, closing at 2 or 3 p.m. and on weekends to avoid extra shifts during particularly quiet hours. And many are not open on Mondays, a slow day for office trips at the moment.
“Even though there are more people coming Downtown, they're not coming downtown five days a week, 9-to-5,” Bertrang said. “It's just going to be a different Downtown. What we're excited [about] is we're part of what that different Downtown going to be.”
The free space is a huge boon to businesses; monthly commercial rents in the Financial District often average about $5 a square foot, according to Haley Klein, a partner at brokerage Maven Commercial: $7,500 a month for a 1,500 square foot space, for example.
While San Francisco had one of the lowest retail vacancy rates in the country historically, the market has taken a beating over the last few years and has yet to fully recover. The citywide retail vacancy rate currently hovers around 6.5%, according to real estate firm Avison Young, more than double 3% rate in the fourth quarter of 2019.
For the Financial District and the South Financial District, retail vacancies are 3.5% and 7.4%, respectively. Other areas of the city’s Downtown core like Mid-Market (14.7%), Yerba Buena (22.8%) and Union Square (18.3%) face much higher vacancy rates.
Klein represents four of the properties being used in the program. She says Vacant to Vibrant has brought interest and attention to spaces that Maven was having trouble renting. Since the program’s launch, she’s received more inquiries than before about these properties and others Downtown.
“It’s been helpful to have activity in these spaces in the meantime to help a future tenant envision a space in the future or see it in a light they couldn’t see it in before,” she said.
One of these storefronts is inhabited by a new art gallery and event space, GCS on Jackson Street.
The slick space is the physical outpost of a creative agency run by Victor Gonzalez, who says the program has been beneficial to everyone. Using his own funds combined with the grant he received from the program, he fixed up the space: refinishing the floors, fixing up the electrical system and lighting, and replacing the ceiling. And the gallery has brought creative life to the often staid business district, hosting exhibitions and openings with artists from across the city and Europe.
Gonzalez says he’s in talks with the landlord about signing a lease that would allow him to stay longer; he hopes for years.
“Chances are pretty good we’re going to end up being permanent,” he said. “San Francisco has always gone through boom and busts. To help be a part of the revitalization is something I’m really excited to do. And it means that as the city is on its way up again, my business will be positioned well—instead of trying to get on the wave.”
Kosoy, whose storefront was home to another coffee shop that closed in 2020, said he knows he has a long way to go before being able to make rent in the area. But the foothold Downtown benefits his business in many ways, particularly through exposure.
“It’s not going to happen in 90 days,” he said. “It’s going to take longer to be successful.