Aralon Bets on SF’s Union Square With $9M Redevelopment

In San Francisco’s Union Square, one out of five offices are empty and many luxe retailers have pulled up stakes. But that hasn’t stopped Aralon Properties from betting on the office market.

The San Francisco-based developer has filed plans to renovate and expand a five-story retail building at 838-842 Market Street, while adding 45,400 square feet of offices, the San Francisco Business Times reported.

Plans call for keeping the basement and first two floors of the 65,000-square-foot building for shops, while renovating the third, fourth and fifth floors for office use.

Aralon then wants to add a sixth floor of nearly 10,000 square feet for more offices.

The project, designed by OTJ Architects of Washington, D.C., would resemble a soaring white set of “Hollywood Squares” above Union Square, and would include a new rooftop terrace.

Aralon, which didn’t respond to a request for comment, was a minority partner in a group of buyers that purchased the property for $30 million last summer. Colliers, which represented the seller, said tenants Converse and Oakley had “leases expiring in early 2023,” opening the door for the building’s redevelopment. Converse has already shuttered its store at 838 Market.

The developer plans to spend $9 million on its Union Square retail and office project — a bet on the district’s future when its viability seems in question, according to the Business Times.

Union Square’s 3.2-million-square-foot office market had a 21 percent vacancy rate last quarter, and its retail market has also struggled through the pandemic, with some of the highest vacancy rates in the city’s history.

This month, The RealReal was the latest retailer to leave Union Square, where declining foot traffic has resulted in shops pulling out from the city’s expensive Downtown.

Many tentpole stores in the area have closed in recent years, including Crate & Barrel, CB2, Disney, Gap, Abercrombie & Fitch, Uniqlo, DSW, H&M, Marshall’s and Nordstrom Rack. In December, The Container Store signaled it will move out of its 30,000-square-foot location.

Departures of major retail chains from San Francisco’s luxury shopping district have also drawn attention from City Hall.

The slump in business around Union Square led Mayor London Breed and local businesses to promote zoning reform to revitalize the upscale shopping district. The plan calls for lifting zoning restrictions to draw more tenants, while adding housing and offices on upper floors.

Aralon, which owns office and retail properties in the city and in Silicon Valley, hiked the rent of a San Francisco antique mall in North Mission by $900,000 a year. Stuff, a 17,000-square-foot antiques emporium, said last fall it may be forced to close if it couldn’t get a better deal.

— Dana Bartholomew