San Francisco Retail Fundamentals Soften as Tourism Industry Weakens

SAN FRANCISCO, CA— Despite relative stability in overall market conditions last year, widespread layoffs and a drop in tourism activity are expected to be a drag on San Francisco retail fundamentals in 2009, according to a second-quarter Retail Research Report by Marcus & Millichap, the nation’s largest real estate investment services firm.

In fact, through the first quarter, local hotel room demand fell 12 percent from one year earlier, compared with an 8 percent decline for the nation, reducing visitor spending.

“While investment activity is projected to decline further this year as economic strains weaken operations, San Francisco’s tourism spending and prospects for an eventual turnaround will maintain buyer interest,” says Jeffrey Mishkin, (top right photo) regional manager of the San Francisco office of Marcus & Millichap.

“Cap rates are averaging in the mid-6 percent area and will likely continue to rise in the quarters ahead.”

Following are some of the most significant aspects of the San Francisco Retail Research Report:

· Layoffs are expected to accelerate in San Francisco, led by significant losses in the financial services sector. Employers are forecast to reduce head counts by 40,500 positions, or 4.1 percent, in 2009, following the elimination of 15,700 workers last year.

· Development will slow considerably this year, as builders are scheduled to deliver only 75,000 square feet, down from 2008, when 300,000 square feet was completed.

· As the pullback in consumer spending weighs on retailer demand, vacancy is expected to push up 90 basis points to 4.8 percent in 2009, after a 30 basis point drop last year.

· Weakened occupancy levels will result in further downward pressure on rents this year. Asking rents are forecast to contract 3.2 percent to $33.10 per square foot while effective rents decrease 3.9 percent to $30.42 per square foot.

For a copy of the complete San Francisco Retail Research Report, as well as reports on other markets nationwide, visit our website at http://www.marcusmillichap.com/.

Press Contact: Stacey Corso, Communications Department, (925) 953-1716