Landlords expecting that another boom time is just around the corner, ignoring the fact that retail has been struggling since before the pandemic and that restaurants are struggling to stay afloat across the city, may shoulder much of the blame for the impossible economics of managing small businesses in SF.
We’ve been hearing it since 2018 at least, if not before: In some popular neighborhoods in San Francisco, the rents being demanded by landlords for street-level commercial space are cost-prohibitive for anyone but large chains. And in neighborhoods where formula retail is essentially banned, that has meant half a decade or more of depressed blocks with multiple vacant storefronts, and businesses that open and shut within a year or two.
Jump to 2024, and with SF’s local economy still in recovery mode from the pandemic, with the cost of doing business in San Francisco — and the cost of building materials and labor for new restaurant and retail spaces — continuously rising, and you have a landscape where many businesses fail or are on the brink of failing.
The issue comes to the forefront this week with a new opinion piece by the Chronicle’s Soleil Ho, who talked to two restaurateurs with relatively new restaurants who say they’re barely making it, or could be in serious trouble, largely because their overhead is far too high.
Azalina Eusope, who has already watched a business go under that opened just months before the pandemic lockdowns began, has been trying to make a go of it in the past year in a new space in the Tenderloin. Her restaurant, Azalina’s, has won plenty of praise, from Eater, the Chronicle, and others, and it’s serving a pretty reasonable four-course prix fixe for $100 that includes beverages.
January is always a slow month for restaurants, and typically a terrible time to be asking restaurateurs how they’re feeling about their businesses, but Eusope bemoans nights when she only gets five customers in the dining room, when she has overhead of $70,000 per month to cover, including $11,000 per month in rent.
That rent was locked in before the pandemic, but it already seems outrageously steep for a space a the corner of Ellis and Leavenworth that hasn’t exactly been a prime restaurant hot spot for decades. Eusope tells the Chronicle that she has been trying to renegotiate her rent based on the current reality of the neighborhood — but really, was $11K ever reasonable for that space?
And it appears, even after everything the city has gone through, stubborn landlords are still basing their prices on a reality that doesn’t exist, and that might not exist for years. As Blake Kutner, the director of business development for La Cocina — the food business incubator that helped launch Eusope into business — tells the Chronicle, “People are still basing prices on peak times, on what they think might be possible.
He explains the thinking of landlords as being based on a hypothetical future in which, they imagine, restaurants or stores might be booming and paying them too little for the privilege. “For many places, rent is close to what it was pre-pandemic even though sales might be half. Landlords are thinking, ‘If I underprice it now, it’ll feel like a mistake three years from now.’”
If a landlord themself is facing rising costs, from insurance, interest rates, or whathaveyou, then some of this thinking might be justified. But for second, third, and fourth-generation landlords of long paid-off properties, this is pure greed at work. And while the SF Board of Supervisors and SF voters passed a “retail vacancy tax” in 2020 to combat the trend of landlords leaving spaces empty for years while demanding high rents, very few landlords have felt the impact of this. As the Chronicle reported last year, since the tax took effect in January 2022, only 74 landlords had paid it over a year later, despite probably hundreds if not thousands of landlords who would be subject to it under audit.
It’s a favorite refrain of business owners in SF to complain about “the city” not doing enough for them, and “the city” being hostile to small business for various reasons from red tape to policing. But what’s more hostile to small businesses than charging unrealistic rent that will likely mean they’ll have to close unless they’re wildly successful in their first year?
Ho also points to the fact that diners get sensitive to rising dish prices, despite the fact that restaurant owners are, in most cases, barely making a profit and hardly trying to rip you off. Ho speaks to Tracy Goh about her Noe Valley Malaysian restaurant Damansara, and how diners often tend to balk at prices over a certain level for "ethnic food," and about how delivery apps like DoorDash essentially erase all profit for any restaurant with their fees, even if they might keep a kitchen busy on a slow night.
But let’s start with the landlords. If rents weren’t so impossibly high, despite the dreary landscape for retail and restaurants that we face, then prices wouldn’t have to be so high to make things pencil. The city can surely improve and make permits easier and the like, but if the rent wasn’t so high, maybe more interesting retail and adventurous restaurants could start opening again, and landlords wouldn’t be sitting on so much vacant ground-floor space.