With So Much Vacant Ground Floor Retail, Why Are We Still Building More?

When new apartment and office buildings are built, Bay Area cities often require developers to include retail space on the ground floor. The goal s to create vibrant neighborhoods by encouraging foot traffic and what urban planners call street “activation.” And yet, many of these spaces are vacant all over the region from downtown San Francisco to Concord. We’ll talk about the challenges of filling up ground-floor retail, and if we should be changing the way we design buildings and neighborhoods.

Show Transcript

This partial transcript was computer-generated. While our team has reviewed it, there may be errors.

Alexis Madrigal: From KQED in San Francisco, I’m Alexis Madrigal. Today, we are gonna get to the bottom of the question that has haunted me for years now. Why? Why is there so much ground floor retail space in our Bay Area cities, and why? Why is so much of it vacant? It goes without saying, I think, that all that vacant space is terrible for urban life, but as I understand it, that retail space was required precisely to add to the vibrancy of our street life. What went wrong, and can we somehow fix it? It’s all coming up next right after this news. 

Welcome to Forum. I’m Alexis Madrigal. All across the cities of our Bay Area, there’s a kind of development that’s struggling. For decades, new buildings have put in ground floor retail. Mixed use development like this was supposed to add to the vibrancy of city life, and certainly, there are places all over the world where cute little shops and restaurants sit underneath apartment buildings, and the city feels alive in those places. People stroll, people shop, people eat, people work. It’s great. But that’s not really how Berkeley and San Jose and San Francisco and Oakland feel in a lot of places right now. We’ve got new buildings, housing and commercial alike, and then we’ve got vacant space on the ground floor. And it is such a vibe killer to walk two or three blocks and see nothing but for lease signs. So what happened? Today, we’re gonna gather the threads with three different kinds of experts to try to tell you the story of why our cities have this particular dysfunction and where we might find our way out of this mess. We’re joined first by Sujata Srivastava. Sujata Srivastava, chief policy officer of SPUR, a nonprofit public policy organization in the San Francisco Bay Area. Welcome, Sujata. 

 

Sujata Srivastava: Thanks for having me. 

 

Alexis Madrigal: We’re also joined by Alex Seguess, who is a commercial real estate broker specializing in retail, senior vice president at CRBE, CBRE? CBRE? CBRE. And we’re joined by Daniel Chapman, professor and chair of the Department of City and Regional Planning in the College of Environmental Design at UC Berkeley. Welcome, Daniel. 

 

Daniel Chapman: Hi there. 

 

Alexis Madrigal: So, Sujata, lay out the issue for us. I mean, is this, like, just my city level walking around observation and there is all this ground floor retail? Or, like, there really is a problem with this, right, in a lot of our Bay Area cities? 

 

Sujata Srivastava: There really is a problem with it in a lot of our urban centers and our downtowns, specifically. I think, you know, for shopping centers and malls, I think this is less of an issue putting San Francisco Center Westfield Mall to the side. 

 

Sujata Srivastava: I think for the most part, the real issue is that there’s been a combination of factors. There’s been changes in how people spend their money and how they shop. There’s been a lot of change in the retail sector, and we’ve had this huge decline in foot traffic in the last five years, you know, as a consequence of the pandemic and hybrid work and a decline in tourism. So all of those factors are kind of contributing to this issue for particularly for, like, those walkable urban retail centers. 

 

Alexis Madrigal: Yeah. And that’s yeah. That’s really where I have been seeing and thinking about this is downtown Oakland, downtown San Francisco, the Shattuck Strip in Berkeley, and pieces of San Jose too. Is that right? Are there other places where this is happening too? Like, what’s happened in, you know, Walnut Creek or or something, Alex? Is it still the same thing there? 

 

Alex Sagues: Yeah. You see, this effect play out in every submarket. So it’s certainly occurring in Walnut Creek. I think maybe not to the same degree. Walnut Creek, I think, has been a net beneficiary from COVID. You have more people working remote there. And it’s a longer commute to other retail, longer commute to the city. So the retail in Walnut Creek specifically has benefited. But even there, you still see pockets where you have vacancy or, you know, ground floor retail and mixed use buildings that has been more challenging. 

 

Alexis Madrigal: Daniel, tell us where the kind of concept of building this particular kind of development kinda came from. This idea that you’d have new buildings with ground floor retail. 

 

Daniel Chatman: Yeah. I, my impression of this, I’m I’m happy to hear what the other guests have to say, is, that like many zoning requirements imposed by municipalities, there has been an idea of a vision of what ought to be there that has then been adopted, in order to try to make it sort of make it happen and to intervene in the market. And in this case, the desire to have ground floor retail is, you know, there’s a couple of different aspects to it. One of them is about sort of encouraging economic development, maybe bringing in retail sales. Municipalities have an incentive to try to encourage retail development because of the sales tax revenues that accrue to them. But also there has been this intention to try to, increase walking and decrease driving and, and make it easier to take transit and to enable people to make shopping trips to and from those transit stops. 

 

Daniel Chatman: And so I think the intention was to do that. It’s just a question of the way that it was, that it was carried out and the extent to which it was kind of universally adopted, as a mandate. 

 

Alexis Madrigal: Because, yeah, this is part of the rules. Right? The people have to do this? 

 

Daniel Chatman: I mean, I think it has been imposed upon in certain locations, in certain instances, in places that are developing relatively, let’s say, you know, four and five story development, in downtown areas that are seen as being being, you know, worthy recipients as it were of of retail stores and restaurants and that sort of thing. And so I think that, you know, you have this intention or or belief that it’s almost necessary to have retail be part of the story, and it’s sort of a reification of the concept of mixed use development that somehow mixed use development is the holy grail of of development and the kind of the transferring to development and smart growth scheme of the world. And so, to the exclusion of other sorts of notions of travel and of people’s time, it’s been, you know, this kind of privileging of retail. 

 

Alexis Madrigal: I mean, it makes sense. Right? This seems like a good idea. Like, is it a good idea that sort of was overly broadly applied, or do you think it was more in the execution and the details where things went awry? 

 

Daniel Chatman: I would love to hear what the other guests have to say about this, but, and I know Sujata knows a lot about this. And but I would put it very simply. I think it was great to allow mixed use development. I thought that I think that it used to be the case that you couldn’t have it. And then people realized, oh, no. No. No. No. Why shouldn’t why shouldn’t we have mixed use development? Why shouldn’t we have corner stores? Why shouldn’t you know? And those sorts of those sorts of, sentiments gained sway but then the problem was very simple. What planners always do is they require things. It’s not that they just allow them, they decide, oh, no. It’s not that we’re gonna allow them. We’re gonna require them. Well, requiring things universally is a recipe for disaster. 

 

Alexis Madrigal: What do you think? Sujata, what do you think? 

 

Sujata Srivastava: I mean, I agree to some extent to the fact that, like, there were some requirements that were put into place, particularly without the density to really justify it. I think that’s part of the issue. So I think there’s a distinction to be made between places like, downtown Berkeley that have actually experimented a lot with increasing densities in residential areas and also had a historic area that already had those storefronts already in place. And you see a lot of success there pre pandemic, particularly with restaurants and dining, you know, bars, entertainment kinds of uses, they were never really successful in getting a lot of, like, comparison goods shopping kinda retail that maybe Emeryville and other places captured. Same thing for downtown Oakland with, like, the uptown area with a lot of those new buildings. They had quite a bit of success because they added a lot of housing with some of the restaurant spaces. I think what you do see though is sometimes there will be a new development project in, you know, at a BART station, and there will be a requirement for retail because with the idea that we don’t want just a blank face here. We wanna create a sense of place for the community. We want them to have some of the everyday things. But without enough housing density to really justify those spaces, they sort of struggle. And, you know, sometimes we also don’t wanna create a lot of parking lots. So some of the retailers struggle because there’s not enough density in the walking area, kind of in that radius for people to come to them, and there’s maybe not enough parking to induce people to get there. So I think getting the balance right and understanding what type of place is this and do we have the right mix of uses. Do we have enough density of employees and residents and visitors to justify this type of space? Because I did a lot of market feasibility studies in my past Yeah. Career. We would always make recommendations that were maybe twenty percent of what was eventually in the plan because there’s this concern of, like, what is the street gonna feel like if we don’t have activation? How do we actually try to make something here that didn’t exist before? 

 

Alexis Madrigal: Yeah, I mean, that’s right. That’s part of the problem. It’s like, what’s the alternative? If there’s no retail on the ground floor and the building is just completely closed off to the street, then what? Right? That also seems kinda bad.  

 

Sujata Srivastava: Right. And I think part of it is, like, there’s a reliance on these, like, commercial uses. We really want commerce here. And maybe we should be thinking a little bit more openly about arts, culture, other kinds of institutions and organizations. There’s, like, some cool other ideas that are emerging particularly in this moment as folks are thinking about downtown revitalization of how else can you create activation that doesn’t rely entirely on goods and services in that typical way. 

 

Alexis Madrigal: Yeah. Alex, I wanted to ask you about some of these terms that kinda help people understand what these spaces are actually like and why they might be difficult to lease. These new buildings, as I understand it, have the retail space is a cold, dark shell. What does that mean? 

 

Alex Sagues: Yeah. So that’s really a description of how retail space and commercial space is often delivered in new construction projects. 

 

Alexis Madrigal: So it’s not just a vibe. It’s actually a technical… 

 

Alex Saguesd: Oh, it’s also a vibe if you they’re cold and dark. But, you know, and that is really based on the, you know if you’re saying, okay. We wanna build a HVAC or air conditioning in a space. Well, how much? You know, your architect or your engineer will ask you how much. And what a restaurant needs is very different than what a clothing store needs. Similarly, where should we put a restroom? Well, everyone’s gonna have a, you know, slightly different, ideal location for that, and you’re all to have constraints of the building. And so what developers, you know, have tended to do is say, well, we’ll you know, we won’t build those things. We’ll provide an allowance to a tenant when they come into the space to build. And, you know, and that’s really worked the best. If you’re a national tenant, you know, a 

 

Alexis Madrigal: Starbucks to look like a Starbucks. 

 

Alex Sagues: Exactly. And operations are really important to them, you know, and how every, the location of every piece of equipment is very important to just retail you know, national retailers in general. So the challenge is for a small, you know, local retailer, the cost of, you know, for construction is much more impactful for them. So they’re more flexible about where it can go. And where you’ve seen this problem, you know, emerge, where you see some and this is, you know, it’s not one size fits all, but where you’ve seen, this create vacancy is that cost of construction have gone up, you know, tremendously over the last five or ten years, and developments work on a very long timeline. If you’re building an apartment building, you might be underwriting that development or entitling it and not building it for, you know, five it might not be complete for five or ten years. And so your business plan five or ten years ago would look very different than. At the same time, you know, most developments are built with a contingency, you know, a, a just in case bucket. And that has also been really impacted by rising interest rates, and insurance. So we work on some developments where insurance has gone up three hundred percent. It’s the same impact that homeowners are feeling. And, that contingency has gone away, and now retailers, you know, developers don’t have that just in case bucket anymore.