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San Francisco Brokers Urge City to Reconsider
Vacancy Tax

by Scott Donald, Irvine, April 2020

 

San Francisco voters approved Proposition D in the Super Tuesday election before the lock down from COVID-19 went into place. With restaurants and stores forced to close during the pandemic, some industry officials believe timing for the tax is now all wrong.

 

Wide Ranging Tax

 

Under Proposition D, owners in certain commercial districts who allow their street-level storefronts to be vacant for more than 182 days face a new tax.

 

Starting in January 2021, the tax will be $250 per foot of sidewalk frontage for the first year of remaining vacant; $500 in the second year; and $1000 every year after. Fees collected are earmarked for the city’s new small-business fund.

 

According to data from CoStar, average retail available space sits on the market in San Francisco for nearly seven months, which amounts to roughly more than 200 days. That means most landlords trying to market their space could be subject to the tax.

 

Multiple Factors Involved

 

Jesse Gundersheim, director of market analytics at CoStar Group in San Francisco, said that prior to the pandemic’s accelerating outbreak, high rents, expensive build-out costs, and lengthy delays in permitting often prevented aspiring restaurateurs and retailers from opening new locations in San Francisco. Some available retail spaces, particularly on rough stretches of Mid-Market and in the Waterfront North Beach area, have been vacant for years.

 

Gundersheim added that while the vacancy tax was meant to revitalize the city’s underused spaces, it fails to address the other factors preventing new store and restaurant openings.

 

San Francisco city officials have scrambled to approve resources for small businesses struggling through the current stay-at-home order. However, changes to the vacancy tax have yet to be discussed.