My wife and I live in SF (renting of course.) We've been watching the businesses on an upscale street. Generally the streets are full, and businesses seem fairly healthy. A Whole Foods opened some months ago and is doing very well (it helps that they've introduced a low cost house brand.) But a number of stores, mostly boutiques, have gone out of business over the last year, and generally the storefronts remain empty. I noticed a new "closing sale" this morning. My guess is that a) the economy has not been strong enough to support stores that depend pretty much entirely on discretionary income b) the landlords are probably asking the same rent as before, which the market may no longer support c) entrepreneurs may be especially cautious these days about risking capital on a new business, and of course banks have tightened lending requirements.
That same reader had this follow up:
John,
A followup to my report some months back about the vacancies on Upscale Row in our neighborhood. Most empty storefronts have filled. Among the newcomers: a fashion boutique, a boutique bank, a boutique pizza-wine bar, a fancy real estate office, and an upscale children's dentistry practice. The sidewalks continue to bustle. If there are storm clouds destined for this part of the economy, either they haven't arrived yet, or no one's looking up.
The reader's observations are in a community that is affluent. I also work in an affluent part of the San Francisco Bay Area (Walnut Creek). We have the same experience; vacancies are relatively light and get leased up quicker compared to areas located in what I might term more Main Street.
I believe this highlights one interesting dynamic in this economy; it has discriminated between the haves and have nots. When I drive through cities or markets that have suffered the most (The Have Nots) I still see massive vacancies and run down real estate. In the higher end markets (The Haves) I don't see the same issues as intense.
It doesn't surprise me that the reader's Upscale Row is experiencing vacancies getting filled. The affluent pockets of the world have yet to feel the full force of the down turn like that of the Main Street economy. The affluent are in affect holding up consumer spending. Take a look at charts of Tiffany's (TIFor Coach (COH) (high end retailers) and you see this strength in the price of their stock.
The other component of importance is those property owners may have reduced rents to a level that made it attractive for new tenants to sign leases and fill those vacancies. Lower rents coupled with good foot traffic of an Upscale Row may make that location more attractive, at least for now.
We still have an economy that has separated the world between Main Street and Wall Street or in this case The Haves and Have Nots, as the affluent are faring better.
I've often thought affluent pockets of places like San Francisco or Walnut Creek are not great gauges of the total economy because of the affluent factors. They are a better gauge of what's going on in the world of the affluent, an interesting segment! If we get another significant leg down in a deflationary cycle, we might see this change a bit as deflationary dynamics move to the affluent.
Great reader observations!
Hope all is well.
J.D. Rosendahl, Rosey