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Pop Ups Aplenty

San Francisco Retail

Pop-up retail is, well, popping up everywhere. It's another example of online retailers trying storefronts on for size. And that's why we're excited to host our Evolution of Retail: Merging Brick & Mortar and Digital Shopping event at the Marines' Memorial Club on Friday Dec. 5, 8am. 

This week, the Mission debuted one of its coolest pop-ups: German audio giant Sennheiser's small retail outlet at 2277 Mission. Here employees Molly Mygatt and Ariel Golan are rocking some of the goods for sale. Already firmly established in the high-end headphone and professional audio market, the brand is upping its appeal to a lifestyle audience. Hours are noon to 8pm daily.

It's one of two temporary experiential Sennheiser stores running through Dec. 28 (the other is in NYC's East Village). A spokesperson tells us the company is testing out the bricks and mortar concept to get closer to its customers--showing a "face" to the brand--and also evangelizing the benefits of premium audio. Check out this interactive audio-visual installation by Andreas Muller of London-based design firm Nanika.

Nine pop-up retail stores--ranging from fashion to fan merchandise to art--sprung to life this month in the Hammer Theater Center in downtown San Jose (half a million people visit the City Center during the holidays). Above, therethere x SJ selling its wares. The temporary retail spaces, open through January, are also a great place to stash cash for Small Business Saturday, Shop Small this Saturday. Etsy and American Express teamed up to have small business showcase local designers (in S.F., Little Paper Planes at 855 Valencia will host an Etsy trunk show throughout the day).

Last month Cushman & Wakefield's Jennifer Pelino told us pop-ups, like Steve McCaig's World Series Store (below) that was temporarily set up in Crocker Galleria at 50 Post, are good for the owner of a retail property because they provide additional income. Often pop-ups are interesting tenants that generate a lot of buzz and foot traffic. Some examples are product launches, Wii, new car models, Ebay, Art.Com, high-end cosmetics and e-tailers.

As for e-commerce, it seems as though retailers and developers are still in early stages of making adjustments, says Merlone Geier Partners' Jain Wager, who will be a panelist. Our economic downturn stalled new development and we quickly realized that the world has changed and is not going back to the old formulas of pure brick-and-mortar or pure e-tailing--the power is in omnichannel marketing, she says. 

For the bigger retail picture, we asked Cassidy Turley NorCal research director Garrick Brown, who's also a panelist. The Bay Area’s retail market leads the US, with S.F. having the lowest level of vacancy (2.9%), he says. But demand, rents, construction costs and city fees are all rising so fast. While we continue to see retailers look here for growth, the cost-conscious are starting to sign elsewhere. New construction, which is ramping up in the city, South and East Bay, may address the issue of available space but not pricing, as new construction is leading the way in terms of boosting rents.

Asking rates for shop space in new product are coming in at $60/SF or more. This is for trade areas where just 30 months ago the average lease rate was in the high $30 to low $40 range. It is wreaking havoc with tenant expense ratios and starting to negatively impact deal flow. It could also lead to a high turnover rate, basically, a churn and burn market—particularly for restaurants. ("Burn" is never good in any context at a restaurant.) Normally, healthy restaurant expense ratios allocate between 10% and 15% of their gross income to rent. We are now seeing tenants sign for 20%. To hear more, please join us for our Evolution of Retail: Merging Brick & Mortar and Digital Shopping event at the Marines' Memorial Club on Dec. 5, 8am. Sign up here!