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HomeMy WebLinkAboutStaff Report 2508-5061CITY OF PALO ALTO Retail Committee Regular Meeting Wednesday, August 20, 2025 9:00 AM     Agenda Item     2.Economic Development Activity Report August 2025 Late Packet Report Added, Presentation Retail Committee Staff Report Report Type: ACTION ITEMS Lead Department: City Manager Meeting Date: August 20, 2025 Report #:2508-5061 TITLE Economic Development Activity Report August 2025 This report will be a late packet report published on August 14, 2025. Retail Committee Staff Report From: City Manager Report Type: ACTION ITEMS Lead Department: City Manager Meeting Date: August 20, 2025 Report #:2508-5085 TITLE Economic Development Activity Report August 2025 RECOMMENDATION Staff recommend that the Retail Committee receive this Economic Activity Report for the month of August 2025. EXECUTIVE SUMMARY This August 2025 Economic Development Activity report presents information on the City’s retail landscape from CoStar, retail businesses reporting, and Q2 updates on 2025 Council Objectives. BACKGROUND The Palo Alto City Council approved Palo Alto’s Comprehensive Economic Development Strategy in August 2023. The full strategy is available on the City’s economic development website1. As part of its 2025 priority setting process, the City Council once again selected Economic Development, refining the focus by replacing “Transition” with “Retail Vibrancy”. In March 2025, the City Council discussed the workplan for this priority which consisted of twelve objectives2. These objectives were informed by the Economic Development Strategy and other community needs. The workplan was approved May 2025 and provides the focus of the City’s economic development work for 2025. To help advance the City’s Economic development strategy and objectives, the City Council created the Ad Hoc Retail Committee, which first convened at the end of 2023. The committee evolved into a brown-acted Ad Hoc and began convening its meetings in public subject to the 1Economic Development Strategy: https://www.cityofpaloalto.org/Business/Comprehensive-Economic- Development-Strategy 2 2025 City Council Priorities and Objectives: https://cityofpaloalto.primegov.com/Portal/viewer?id=0&type=7&uid=c975a9ba-6051-49f1-8c02-cf12a9afc87b brown act beginning in March 2024. During the 2025 Council Retreat, Council proposed to continue the Ad Hoc Retail Committee on a bi-monthly basis; they are expected to continue in even months throughout 2025. ANALYSIS This section of the report provides an update on the CoStar data for Downtown University Ave and California Ave, retail business reporting, and 2025 Council Priorities Q2 Updates. CoStar Information CoStar is considered the industry standard for real estate reporting. While the data has its limitations, it provides a reliable foundation for understanding market trends. It’s important to note, however, that it does not account for all external factors. For example, a property is only reported as vacant if no tenant is paying rent and it is available for lease or sale. If a tenant is still paying rent, even if the space is not yet occupied, it will not be listed as a vacancy. Nonetheless, the information remains useful for future benchmarking and comparisons. To build on this foundation and respond to growing interest from the committee and community members regarding the retail landscape in the City’s commercial cores, staff is actively exploring reporting services from local brokers to provide more on the ground insights. These insights will help add context to the data and better reflect what people are seeing in the commercial cores. In the meantime, the City is utilizing CoStar, the largest source of real estate information, to generate high-level information regarding the current retail conditions in the University Avenue Downtown and California Avenue business districts. University Avenue Business District A map was created in CoStar bounded by Lytton on the North, Forest on the South, Alma on the West, and Cowper on the east. This geographic area represents a significant portion of the retail core for the Downtown University business district and intentionally excludes the Stanford Shopping Center. The map is shown here as Figure 1. The average annual asking retail rent for vacant properties within the bounded area is $83.04 (~$6.92/mo) per square foot as of Q2 2025, representing a minor decrease from the high of the last ten years ($84.72 (~$7.06/mo) in Q3 2020) but higher than the low of the last ten years ($51.72 (~$4.31/mo) in Q4 of 2016). The current retail vacancy rate is 13.1% for Q2 of 2025, down from 14.5% from a year ago. Over the last ten years, the highest retail vacancy rate downtown was 17% in Q1 of 2024. Vacancy in Q3 and Q4 of 2015 was 0.7%, representing the lowest vacancy rate seen in the last ten years. Approximately 105,876 square feet of retail was available in the University Avenue district as of the Q2 Report in CoStar, a decrease of 13,967 square feet from 119,843 in Q1 of 2024 as the highest in ten years. Net absorption is a figure that represents the square footage that has become available (increase in vacancy or new construction) offset by the square footage that has become occupied (decrease in vacancy) within the last 12 months. A negative net absorption figure means that more space has become available over the term than has become occupied. The most recent figure is negative 9,400 square feet of net absorption, which compares to lows of negative 33,538 square feet in Q2 of 2023 and highs of 18,241 square feet in Q2 of 2024. California Avenue Business District The map created in CoStar is bounded by College Ave on the North, Oregon Expressway on the South, Park Boulevard on the East, and El Camino Real on the West. The map of this is shown below as figure 2. The average annual asking retail rent for vacant properties within the bounded area is $57.84 (~$4.82/mo) per square foot as of Q2 2025, representing a decrease from the high of the last ten years ($66 (~$5.50/mo) in Q2 2019) but higher than the low of the last ten years ($48 (~$4/mo) in Q2 of 2015). The current retail vacancy rate is 7.5% for Q2 of 2025, down from 9.2% from a year ago. Over the last ten years, the highest retail vacancy rate was 16.2% in Q1 of 2023, and the lowest being near complete occupancy in Q4 of 2016. Approximately 22,458 square feet of retail was available in the California Avenue district per the Q2 report from CoStar, a decrease of 26,304 square feet from 48,762 in Q1 if 2022 as the high in ten years. The net absorption figure for the past 12 months for the bounded region is approximately 7,600 square feet. This is higher than lows of negative 18,332 square feet in Q1 of 2017 and highs of 17,396 square feet in Q2 of 2021. Retail Business Report Attachment A to this report provides information about Certificates of Use and Occupancy issued to retailers between January 2025 and August 2025. The Certificate of Use and Occupancy is required for all businesses operating within commercial tenant spaces. This enables the City to review the proposed land use and assign occupancy limitations based on factors such as usage, square footage, and exiting. The requirement for the Certificate of Use and Occupancy can be triggered by several factors, including a new business, a name change, a change in ownership of the business or property, or a modification to the size of the tenant space. A Certificate of Use and Occupancy does not confer permission to occupy, which is granted when the final building permit is approved and issued. This report assists staff in tracking businesses as they prepare to open and begin operations. Through a separate report, staff are also able to track all businesses that apply for a Certificate of Use and Occupancy. This report allows Economic Development staff to connect with businesses as they begin navigating the development process. This includes upcoming openings like Color Me Mine (321 University Ave), Marufuku Ramen (374 University Ave), and Node (180 University Ave). In addition to the information previously included, staff have identified other notable business activity. A new gallery is planned for 201–225 Hamilton Avenue, with an expected opening in Spring 2026. Furthermore, First Citizens Bank & Trust Co. has acquired the office and retail property located at 250 University Avenue. Staff are also tracking expected closures. At this time, anticipated closures include Good Vibrations and Chico’s. 2025 City Council Priorities The City Council reviewed the 2025 priority objectives in March and approved the objectives in May 2025. For Economic Development there are 12 priority objectives, of which seven will need additional funding to implement. The 2025 City Council Priorities and Objectives Q2 Update has been posted as an informational report5 for the August 18 Council meeting. FISCAL/RESOURCE IMPACT No additional funding is needed at this time for the information provided in this report. The City’s Economic Development and Retail Vibrancy efforts may result in changes to revenues, which will be incorporated into future projections and budgets as appropriate. STAKEHOLDER ENGAGEMENT Stakeholder engagement is a critical component of the City’s economic development function. Economic Development staff continue to meet and connect with business stakeholders through individual conversations, monthly meetings with business districts, and through our Business Connect Newsletter. An upcoming event to support this engagement: on August 19, the Palo Alto Foundation and the Chamber of Commerce will host the Breakfast with Palo Alto Chief and Mayor to discuss more on public safety, cleanliness, crime prevention, etc. ENVIRONMENTAL REVIEW Receipt and acceptance of this report is not a project under CEQA. ATTACHMENTS Attachment A: Attachment A: Permits (Retail) by Type APPROVED BY: Ed Shikada, City Manager 5 2025 City Council Priorities and Objectives Q2 Update: https://cityofpaloalto.primegov.com/viewer/preview?id=0&type=8&uid=7ba27801-0284-476e-828d- a8ba7dc4c31d Retail Building Permits By Type: January 2025 - August 2025 Retail Permit by Typer Description Permit No Date Issued Address Record Status Tenant Name Proposed Use Category Proposed Use Classification Commercial Remodel/Repair 25BLD-00011 01/13/2025 855 EL CAMINO REAL, STE# 158 Finaled SUSHI HOUSE Retail Eating and drinking service Commercial Addition & Remodel 24BLD-03224 01/23/2025 855 EL CAMINO REAL, STE# 157 Permit Issued ROOST AND ROAST Retail Shopping center Commercial Remodel/Repair 24BLD-03446 03/24/2025 201 HAMILTON AV 209 Permit Issued Scher Holdings LLC Retail Retail service Use & Occupancy only 25BLD-00736 03/26/2025 855 EL CAMINO REAL, STE# 103 Finaled Wilby Optical Retail Shopping center Commercial Remodel/Repair 25BLD-00085 03/31/2025 855 EL CAMINO REAL, STE# 98 Finaled FRAMEBRIDGE Retail Shopping center Commercial Remodel/Repair 24BLD-03531 04/08/2025 180 EL CAMINO REAL, STE# DD1301 Permit Issued CEDAR &SAGE DD1300B Retail Eating and drinking service Commercial Addition & Remodel 24BLD-03211 04/09/2025 180 EL CAMINO REAL, STE# P450 Finaled RIVIAN HUB Retail Shopping center Commercial Remodel/Repair 25BLD-00370 04/10/2025 535 BRYANT ST Permit Issued PENG'S KITCHEN RESTAURANT Retail Eating and drinking service Commercial Remodel/Repair 24BLD-03292 04/18/2025 222 UNIVERSITY AV Permit Issued VERIZON Retail Retail service Use & Occupancy only 25BLD-00647 04/28/2025 195 PAGE MILL RD, STE# 117 Finaled The Rendezvous Retail Eating and drinking service Use & Occupancy only 25BLD-01153 04/29/2025 405 UNIVERSITY AV Finaled Pho Bang Mi Retail Eating and drinking service Use & Occupancy only 25BLD-01143 04/30/2025 448 CALIFORNIA AV Permit Issued Terun Pizzeria Retail Eating and drinking service Commercial Remodel/Repair 24BLD-03530 05/12/2025 180 EL CAMINO REAL, STE# D101 Permit Issued REFORMATION D101B Retail Shopping center Commercial Remodel/Repair 25BLD-00200 05/16/2025 170 UNIVERSITY AV Permit Issued Yummy Future Coffee Retail Eating and drinking service Commercial Remodel/Repair 25BLD-00114 05/19/2025 2515 EL CAMINO REAL, STE# 110 Permit Issued WOW TEA Retail Eating and drinking service Commercial Remodel/Repair 24BLD-03555 06/03/2025 180 EL CAMINO REAL Permit Issued AMERICAN VINTAGE F181 Retail Shopping center Commercial Remodel/Repair 25BLD-00372 06/03/2025 180 EL CAMINO REAL, STE# 006A Permit Issued ON RUNNING Retail Shopping center Use & Occupancy only 25BLD-00193 06/05/2025 180 EL CAMINO REAL, STE# C609 Permit Issued Sunglasses hut Retail Shopping center Commercial Remodel/Repair 25BLD-00450 06/05/2025 180 EL CAMINO REAL, STE# 1040 Permit Issued SKIMS #1040A Retail Shopping center Commercial Addition & Remodel 24BLD-02634 06/05/2025 180 EL CAMINO REAL, STE# 129B Permit Issued SHREVE & CO/IWC Retail Shopping center Commercial Addition & Remodel 24BLD-01164 06/09/2025 541 EMERSON ST Permit Issued SCHMIDT BUILDING PART LP Retail Eating and drinking service Description Permit No Date Issued Address Record Status Tenant Name Proposed Use Category Proposed Use Classification Commercial Remodel/Repair 25BLD-00996 06/18/2025 180 EL CAMINO REAL, STE# 1165 Permit Issued Swarowski Retail Shopping center Commercial Remodel/Repair 25BLD-00433 06/24/2025 180 EL CAMINO REAL, STE# 136B Permit Issued DELAROSA Retail Eating and drinking service Commercial Remodel/Repair 25BLD-00798 06/25/2025 180 EL CAMINO REAL, STE# F192 Permit Issued LOOKFOOK JEWELRY Retail Shopping center Commercial Remodel/Repair 25BLD-00334 06/30/2025 326 UNIVERSITY AV Permit Issued 575 MIISHIEN RESTARANT Retail Eating and drinking service Commercial Remodel/Repair 24BLD-03050 07/09/2025 3375 EL CAMINO REAL Permit Issued TARO SAN JAPANESE NOODLE BAR AND CAFE Retail Eating and drinking service Commercial Remodel/Repair 25BLD-00770 07/14/2025 2305 EL CAMINO REAL, STE# B Permit Issued Topi Retail Eating and drinking service Commercial Remodel/Repair 25BLD-00772 07/21/2025 180 EL CAMINO REAL, STE# D115 Permit Issued Veronica Beard Retail Shopping center Use & Occupancy only 25BLD-01964 07/30/2025 3491 EL CAMINO REAL Permit Issued Smokes and Vapes Retail Retail service August 20, 2025 Kiely Nose Assistant City Manager Economic DevelopmentActivityReportAugust 2025 Retail Committee www.PaloAlto.gov/business August 20, 2025 Retail Property Metrics Q2 2025 •Average Annual Asking Retail Rent $83.04/sf (or ~$6.92/mo), down from a year ago •Current Retail Vacancy Rate is 13.1% as of Q2 2025, down from a year ago •Approximately 105,876 sf of retail available, down 13,967 sf from 2024 Q1's high •9,400 square feet of Net absorption over past 12 months Downtown University Ave All data provided by CoStar www.PaloAlto.gov/business •Average Annual Asking Retail Rent $57.84/sf (or ~$4.82/mo) •Current Retail Vacancy Rate is 7.5% as of Q2 2025, down from a year ago •Approximately 22,458 sf of retail available, down from high of 48,762 in Q1 of 2022 •7,600 square feet of Net absorption over past 12 months California Avenue August 20, 2025 Notable Retail Openings and Departures www.PaloAlto.gov/business Expected Departures •Good Vibrations (534 Ramona Street) •Chico's (396 University Ave) Upcoming Openings •Color Me Mine (321 University Ave) •Marufuku Ramen (374 University Ave) •Node (180 University Ave) •Hauser & Wirth (201-225 Hamilton Ave) •Mini Cat Town (429 California Ave) August 20, 2025 www.PaloAlto.gov/business 2025 Economic Development & Priority Objectives - Q2 Updates 12 City Council approved objectives for Economic Development & Retail Vibrancy City Council Priority. 2nd Quarter updates provided in an information item as part of the City Council August 18. Highlights to discuss: •California Avenue •Ramona Avenue •University Avenue •Retail Ordinance Updates •Focus on facilitating business openings August 20, 2025 Upcoming Events and Activations www.PaloAlto.gov/business •3rdThursday •August 21, 2025, 6 PM •California Avenue •Cornhole Tournament – led by CPA Community Services & California Cornhole Association •August 22, 2025, 3 PM – 7 PM •California Ave Closed Street •Palo Alto Festival of the Arts – led by the PA Chamber of Commerce •August 23-24, 2025, 10 AM-6 PM •Downtown University •Code:ART Festival 2025 – led by CPA Public Art Program •October 16-25, 2025 Thank you!