Regional roasters will likely take the place of shuttered Starbucks along several of San Francisco’s most popular commercial corridors, according to the city’s retail agents.
Starbucks has closed or intends to close at least six locations in different neighborhoods across San Francisco since November, a company representative confirmed.
“As a standard course of business, we continually evaluate our store portfolio, using various criteria to ensure we are meeting the needs of our customers,” the coffee chain said in a statement. “We do not take the decision to close stores lightly.”
Starbucks made similar statements about recalibrating its portfolio when it closed seven San Francisco locations in one month in 2023. The recent closures began in November with the closure of 120 Fourth Street in South Beach, followed by 2222 Fillmore in Lower Pacific Heights on Dec. 1 and 1799 Fulton Street in NoPa on Dec. 22. It will also shutter 359 Grant near Chinatown and 744 Irving Street in the Sunset on Jan. 31, and Feb. 9 will be the last day in operation for 99 Jackson Street, as those leases end.
The series of closures makes sense to industry experts as lease terms tend to terminate around year-end and the start of the new year. They did not want to be named to maintain their relationships with Starbucks, but said the coffee chain may have signed too many leases too close to each other between 2010 and 2020, making the closures a case of “natural attrition” after the outlets cannibalized business from each other. Starbucks also took away a lot of seating during the pandemic and never put it back, they added, so they may be looking at a wholesale redesign of their store footprints moving forward.
The retail chain was trying to aggressively renegotiate rents at 50 percent off what they had been paying for some locations, indicating that they would stay open if their operating costs came down significantly as labor costs and other expenses have shot up, according to industry insiders. Starbucks has a history of using their size to negotiate rents on multiple locations with the same landlord, they said, and was one of the first big companies to tell landlords they weren’t going to pay rent during the early days of the pandemic.
Even after the recent closures, Starbucks still has about 50 locations in San Francisco, including several inside supermarkets and Target, according to its website. The rep said the company remains “committed to investing in the San Francisco community” and that it had donated $56,000 to 25 community organizations in the city in the last year through its Neighborhood Grants program.
A coffee city
“San Francisco prides itself on having amazing coffee. We have some of the best coffee operators in the nation and I think it is challenging for a lot of these chain stores to compete,” said Joan Ruyle, a retail agent at Maven who is listing the Fulton Street space.
She targeted local cafe operators when she started reaching out to possible new tenants and has already had several showings, she said. She noted that Starbucks did not cite crime or lack of customers as reasons to close the store on the busy corner at Masonic right next to the 43 bus stop. The company just said it no longer fit the chain’s “configuration requirements.”
Ruyle’s colleagues at Maven are also listing the Fillmore location, along one of the strongest retail stretches in the city, and interest is high there as well, she said.
Owners may not mourn the loss of a Grade A credit tenant like Starbucks the way they did before the pandemic, Ruyle said. After seeing national chain stores move out of the city repeatedly over the last few years, they have shifted their priorities to operators who “believe in San Francisco and love it and have a passion for being here and have roots here.”
Landlords may be looking local, but they still want to see experience in the market, said Ann Natunewicz, a retail agent at Colliers. Experienced regional operators “know where all the problems are” and still see a business opportunity in the city.
“It gives them the confidence to say, ‘We know we can do this,’ and I think landlords would rather hear from someone who’s confident, who has done the work on the ground,” she said. “Even if you get a little bit less rent, you’re confident that they’ll be open for the entire term of their lease and be good stewards to the rest of the neighborhood to help bring in more tenants as other spaces turn over.”
Second-generation cafe
Second-generation coffee outlets are significantly less expensive to turn over, the agents said, and can open more quickly with less outlay by operators that lack Starbucks’ deep pockets.
“The biggest challenge is helping these tenants get open, which means construction and time for permits,” said Natunewicz, who added that some landlords are offering free rent for a period of time in lieu of putting out cash for tenant improvements, which she estimated at about $300 per square foot for second-generation cafe space.
While finishes still need to be changed out for the new occupant, big jobs like HVAC, restrooms and plumbing can remain untouched, seriously cutting back on costs.
“National retailers tend to invest significantly in the infrastructure in retail spaces and that investment makes those spaces attractive to other operators,” said Alex Sagues, a retail agent at CBRE.
CBRE has marketed and successfully leased three former Starbucks locations, one in Palo Alto that was occupied by a restaurant and two in San Francisco. He could not disclose the San Francisco locations or tenants as the deals were still in progress.
The Starbucks space on Irving, a prime Sunset location Natunewicz described as “popping,” also has a taker, according to a source with knowledge of the deal. There were multiple parties interested and a deal was struck with a regional operator before Starbucks had even turned the space back over, the person said.
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