San Francisco Mid-Market’s Success May Hinge On Hospitality, Retail

With thousands of housing units headed to San Francisco's Mid-Market and high demand for office, there are still two things missing: hospitality and retail.

Developers and brokers are working to solve this problem by bringing in more of both. Illuminate founder and CEO Ben Davis discussed the future of hospitality and retail in this San Francisco neighborhood and whether Mid-Market is headed in the right direction with a panel of developers and brokers.

KOR Group principal Alex Samek said the San Francisco Proper Hotel at 1100 Market St. will enliven an entire block along Market Street once the building’s renovation is completed. KOR Group invested in the area because it had already seen what hospitality has done in other cities like New York where entire neighborhoods were revitalized.

“I actually couldn’t believe this [corridor] existed literally in the middle of the city with so much public transportation," Samek said. "This is a nexus to so many neighborhoods."

The 131-room Proper Hotel will offer three food-and-beverage outlets on the ground floor with sidewalk seating and a rooftop bar. The building at Market and McAllister streets is expected to open in the late summer.

“We wanted to become the living room for the neighborhood and allow people to have a place to congregate and to really be able to come together,” Samek said.

Down the street at 1125 Market St., Pacific Eagle is developing a 140K SF 160-room hotel. The hotel will not be just for tourists, according to Hans Galland, Pacific Eagle senior vice president of acquisitions and development. It also will provide collaborative workspace for entrepreneurs and artist studios. Galland expects entitlements to be completed during the third quarter and construction to last 18 to 24 months.

Having several hotels cropping up in Mid-Market will only help the area, Galland said.

“A hotel needs to sell its rooms every day. You have to spend continuous marketing on the location every day,” he said. “For Mid-Market to attract four hotels all sharing that objective creates tremendous opportunities.”

Can Retail Thrive In Mid-Market?

The new hotels along Market Street have the added benefit of bringing new energy to the area while providing additional shoppers to new retail, which has struggled in the area.

Colton Commercial & Partners partner Jay Shaffer said Mid-Market retail is a victim of the area’s success. With office tenants headed into the neighborhood, retail rents have skyrocketed. Restaurants have been hard hit because of rising rents and already thin margins and a lot of retail vacancies cropped up in a short period of time.

“It forces us to pause and think about what we are doing here to activate retail,” Shaffer said. “Every office tenant wants a good location and most tenants still want an authentic creative space, but they also want creative amenities.”

While areas along Market offer an eclectic variety of shops from a nonprofit to a vegetarian restaurant to a medical cannabis shop, Shaffer said there need to be more places like Tidewater Capital’s The Hall. Fun retail, like a beer garden, needs to be added to activate the neighborhood further.

One Jones, also known as the Hibernia Bank, could help bridge the gap for Mid-Market, but the building has been difficult to lease, according to DeRose & Appelbaum principal Santino DeRose. He said prospective tenants are often overwhelmed by the building because it has a lot of beautiful architectural elements, such as 30-plus-foot-high ceilings and stained glass windows. It often takes several tours for tenants to see how they can make the space their own.

The company originally marketed the building for one large tenant. DeRose said his company is now marketing the building as a multi-tenant location with 3K SF to 47K SF available. The building is ready for move-in for office, retail and entertainment. Each floor offers something different and the building can easily accommodate a variety of tenants.

He said new hotels coming to the area will be important to the retail since they bring in impulse buyers.