Five years ago, San Francisco voters hit shopkeepers with a tax on vacant storefronts meant to force landlords into filling them with new tenants. It didn’t work.
The city’s retail vacancy rose 1.3 percent to 7.7 percent in the fourth quarter ending in December, up from 6.4 percent the year prior and well off the 3.5 percent vacancy in 2019, according to the San Francisco Chronicle, citing a report from Cushman & Wakefield.
The plunge in empty storefronts came despite 65,700 square feet in leasing deals in the final three months of 2024.
It was then-Supervisor Aaron Peskin who sponsored the voter-approved measure to tax empty storefronts, saying the tax would incentivize landlords to fill empty stores for which they were asking sky-high rents.
Five years later, there’s no clear sign the tax is working as intended, according to the Chronicle, and San Francisco’s commercial streets still are dotted with blackened storefronts.
Proponents said it would bring in $300,000 to $5 million per year for a small business assistance fund to help new merchants. Instead, the tax raked in $2.2 million in 2022 and $697,000 in 2023, according to the Office of the Treasurer & Tax Collector.
The tax affects dozens of commercial areas in San Francisco, but not Downtown and Union Square.
It requires landlords or tenants who hold leases of properties left vacant for more than 182 days to pay $250 per foot of street frontage on the first year, then $500 for the second and $1,000 for the third.
After the measure passed, San Francisco was slammed by the pandemic, which pushed out more merchants.
Because it was so hard to rent storefronts during the pandemic, the city paused collecting the tax until 2022 while it did outreach to get all property owners and leaseholders to file for it.
Under the law, retail property owners or tenants who hold a lease must file a tax form every year, whether or not the space is vacant. Office of the Treasurer & Tax Collector spokeswoman Amanda Fried said the system has confused many property owners and leaseholders.
Of the 2,700 parcels that are required to file, few have responded. Some 183 storefront owners eventually paid the tax in 2022, and 95 paid in 2023.
For landlords, the tax can feel like an unfair burden amid an already difficult real estate market, Ann Natunewicz, of Colliers, told the Chronicle. She said most members of the real estate community believe the tax is “a lousy idea.”
She said landlords aren’t willfully keeping storefronts off the market. Instead, challenges like crime and a lack of prospective tenants are reasons why they can’t rent storefronts.
“To punish landlords for something not fully under their control is bad business,” Natunewicz told the newspaper. “It adds to the interpretation that San Francisco is hard to do business in. Landlords aren’t keeping their spaces empty. They’re motivated first and foremost to generate revenue.” — Dana Bartholomew
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